New York AG Slaps KuCoin With a Non-compliance Lawsuit, Claims ETH is a Security

The office of the New York Attorney General has sued cryptocurrency exchange KuCoin for operating without proper licensure, and selling, among other tokens, ether, which the state considers a security.

In a suit filed before the federal supreme court, Attorney General Letitia James said the exchange failed to comply with the Martin Act, a 102-year-old law that ”requires the registration of brokers and dealers to facilitate OAG’s regulations and investigations of industry participants and to allow investors to make informed decisions about those they’re trusting with their money.”

James’ lawsuit, which she termed part of the efforts to rein in ‘shadowy’ cryptocurrency firms, addressed the hotly contested debate in the industry – whether ether is a commodity or a security. According to the AG, the second largest cryptocurrency nex to bitcoin is a security, a sharp contrast with the CFTC chair, Rostin Behnam, who said this week that the digital asset was a commodity.

“This action is one of the first times a regulator claims in court that ETH, one of the largest cryptocurrencies available, is security. The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers to provide profit to the holders of ETH,” James said in a statement.

KuCoin Earn is operating against the law, the AG adds

Besides, the AG accuses the Seychelles-based exchange of breaking the law through its KuCoin Earn, a lending and staking product, by not registering as a securities and commodities broker-dealer with the SEC. OAG said it bought and sold cryptocurrencies on KuCoin through the exchange’s account with a New York-based IP address, deposited tokens to the KuCoin Earn product, and was charged a fee in both transactions.

In light of all her findings, James is seeking a court order barring KuCoin from misrepresenting itself as an exchange, and that the company be removed from operating in New York. Her office also wants to have the platform geo-block its mobile app and website from the state using IP addresses and GPS locations.

The suit marks the eighth action by the AG to crack down on cryptocurrency firms the state believes are not complying with the law as part of a wider step by the US to tighten the law related to digital assets since the collapse of FTX. Similar recent suits by the OAG include action against CoinEx, Nexo, and BlockFi.