NY AG sues KuCoin for selling securities and commodities without registration

New York Attorney General Letitia James said the suit is the first time a regulator has claimed Ether is a security in court.

New York state Attorney General Letitia James announced that she has filed suit against cryptocurrency exchange KuCoin after she was able to buy and sell crypto on the exchange, which is not registered in New York. “This action is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security,” according to her statement.  

The complaint, filed on March 9 in the Supreme Court of the State Of New York County of New York County, alleges that Seychelles-based KuCoin violated securities law when it “sold, offered to sell, purchased and offered to purchase cryptocurrencies that are commodities and securities” to New Yorkers without being registered with the attorney general’s office.

In addition, KuCoin is alleged to have issued and sold its KuCoin Earn product, which the complaint labels a security, without registering as a securities broker or dealer. Also, it alleges KuCoin misrepresented itself as an exchange, since it lacked registration for that function as well.

Related: Dutch central bank says KuCoin is not licensed and ‘illegally offering services’

The suit stated that “under both state and federal authority, ETH, LUNA, and UST are commodities,” under the state’s Martin Act, and KuCoin filed to register as a commodities broker. The suit went on to say “ETH, LUNA, UST, and KuCoin Earn are each securities under Waldstein,” referring to test established by the New York Supreme Court of Albany County in 1936, as well as under the Howey test. Furthermore:

“The Howey test is applicable to the tokens as illustrated by recent federal authority.”

The suit specifically cites the SEC v. LBRY case to support that claim. It sought a permanent injunction against KuCoin “selling and buying securities and commodities to and from New Yorkers.” In addition, it asked the court to demand an accounting of all New Yorkers who have used the exchange and disgorgement of funds illegally obtained from New Yorkers.

I’m suing cryptocurrency platform @kucoincom for illegally operating in New York without registering with the state.

This is our eighth action to rein in shadowy cryptocurrency platforms that disregard our laws and put New Yorkers at risk.

— NY AG James (@NewYorkStateAG) March 9, 2023

This is James’s “eighth action to rein in shadowy cryptocurrency platforms,” according to her statement.