KuCoin Lawsuit: NY Attorney General Claims That Ether Is Secure 

Attorney General of the State of New York Letitia James is taking another swing at the digital asset industry by filing a lawsuit against KuCoin, one of the largest and most popular crypto exchanges on the planet.

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James is alleging that KuCoin cannot legitimately claim to be an exchange since it is neither registered with the Securities and Exchange Commission nor properly designated by the Commodity Futures Trading Commission in accordance with New York law, as is required by that law. “This is the latest in a series of steps we have taken to control shadowy cryptocurrency companies and bring order to the industry," James said in a statement on Wednesday.

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James said the state regulator is claiming in court that Ether, the second-largest cryptocurrency token by value, is a security, as per the suit, and James said it's among the first cases where that claim has been made by a state regulator. “In order to protect investors, my office is taking action one by one against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk.”

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On multiple fronts, there is an ongoing debate about whether crypto-assets, as defined by regulators, are securities - and therefore, subject to prevailing laws and regulations and the jurisdiction of the SEC to deal with them. This issue is being examined on multiple fronts, and active litigation is being conducted in this regard. 

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'KuCoin, based in the island nation of Seychelles, failed to register as a securities and commodities broker-dealer in New York, and falsely represented itself as an exchange, according to the lawsuit filed Thursday in the state court of New York.

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It was only two weeks ago that James filed a complaint against the cryptocurrency platform CoinEx that was nearly identical to this one. As part of a second suit against crypto companies Nexo Inc. and Nexo Capital Inc., New York, and nine other states have settled the case in January for up to $24 million.

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As James said in a statement, “the office is taking action one by one against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk by disregarding our laws. The action we took today is the latest step in our efforts to rein in shadowy cryptocurrency companies and bring order to the industry as a whole."

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KuCoin's lawyers were not immediately able to be identified. In response to a message seeking comment from Johnny Lyu, the chief executive officer of KuCoin, the company did not immediately respond.

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There has been an increase in scrutiny of crypto companies by state and federal regulators, including the Securities and Exchange Commission, since the collapse of the FTX trading platform and the resulting meltdown in the industry. This week, Silvergate Capital Corp., a cryptocurrency-friendly lender that has been struggling financially as a result of the turmoil, announced that it will liquidate.

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Earlier Crypto Suits

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It was announced last year that James had filed a lawsuit against former Celsius Network Ltd. Chief Executive Officer Alex Mashinsky for allegedly defrauding investors out of billions of dollars due to his lies about the safety of the once high-flying crypto lender. Also, as part of a wider deal with the Securities and Exchange Commission and state regulators worth $100 million, the State of New York received $1 million in a settlement with BlockFi Lending LLC over the offering of unregistered securities.  

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In a 24-hour period, KuCoin had exchanged more than $500 million in digital assets, according to CoinMarketCap.com, making it the fourth-largest crypto exchange for spot trading, according to data compiled by the website. The company is also the fourth largest derivatives exchange in terms of trading volume over the same period of time, with $1.7 billion in volume traded.

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Since she won a court order in 2021 shutting down Coinseed, a virtual currency trading platform that had misled investors out of millions of dollars across the US, James has taken an increasingly aggressive stance toward this industry. In addition, Bitfinex and Tether are being required to cease trading in the state because their reserves have been overstated and their losses have been hidden for almost $850 million. During the same year, James issued two consumer alerts in which she described cryptocurrencies as an investment that presents "extreme risks" and warned consumers to exercise "extreme caution" when making any investment in cryptocurrencies.

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KuCoin's operators were convicted of operating without a license by the Ontario Securities Commission in June 2022 and were awarded a multi-million dollar judgment. There was a warning issued by the Central Bank of the Netherlands regarding the exchange in December of last year. 

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