New York District Attorney (NYDA), Letitia James, submitted lawsuit against crypto exchange KuCoin. According to documents filed with the Supreme Court of the State of New York against two companies that open trading platforms in the US, PhoenixFin and Mek Global Limited.
The lawsuit alleges that KuCoin offers securities and commodities that are not registered in New York. These digital assets are the former native tokens of the collapsed Terra ecosystem, LUNA, the algorithmic stablecoin UST, and Ethereum (ETH), the second crypto by market capitalization.
The document fails to provide details on which tokens fall under the security and commodity classifications. If Ethereum falls under the jurisdiction of the Securities and Exchange Commission (SEC), the ecosystem and investors in the US may suffer.
KuCoin, the Latest Victim of the Crypto Crackdown
In addition to allegedly offering assets that are not registered in New York, KuCoin facilitates access to financial products, such as KuCoin Earn, to provide investors with returns. These products and actions, the Attorney General argued, are illegal because they are not registered with federal authorities and regulators.
The document states the following:
KuCoin failed to register with OAG as a securities broker, dealer or commodity broker-dealer as required by Article 23-A of the New York General Business Law (“GBL”) also known as the Martin Act. These actions constitute fraudulent practices under the Martin Act.
For operating as a crypto broker and trading platform, the NYDA believes KuCoin “repeatedly engaged” in illegal activities by operating as an unregistered “broker or securities dealer”. The lawsuit aims to ban the crypto exchange from operating in the US and demands a full report on the fees it receives from New Yorkers.
The document adds:
KuCoin also issues and sells a security called KuCoin Earn, which is marketed to investors as a means of earning passive income. KuCoin Earn offers to provide investors with passive income through either interest or staking rewards after investors allocate cryptocurrencies to KuCoin Earn.
Is Ethereum Safe For New York Authorities? News Goods Ahead
On Ethereum as a security, the document provides several arguments. First, ETH was launched through an Initial Coin Offering (ICO), both “development and management driven” by a reduced number of individuals, including inventor Vitalik Buterin.
After the ICO, Buterin and the newly created Ethereum Foundation received a “part of the funding” raised at the event. Thus, NYDA stated that Buterin and the Foundation benefited financially from launching ETH. The document adds:
Buterin and the Ethereum Foundation retain significant influence over Ethereum and are often the driving force behind major initiatives on the Ethereum blockchain that affect the functionality and price of ETH. Most relevant here, Buterin and the Ethereum Foundation played an important role in facilitating the fundamental change of transaction verification methods from proof-of-work to proof-of-stake (…).
The argument that accuses ETH of operating as a security is based on Buterin and its relationship with the project and its migration to Proof-of-Stake (PoS) consensus. Legal expert Collins Belton discusses the NYDA’s lawsuits and arguments.
The expert believes that ETH’s “last boss battle time” is ahead with short-term negative implications for the project. However, in the long run, Ethereum will come out on top. Belton explained:
If we are looking at a civil action, this may be the best time for EF and others to file an amicus brief. For a long time, I feel comfortable about the court that will come out here, because they do not want to set a precedent that they know will not be respected and will undermine the authority of the court. But the slug fest can finally be here. get ready