Another cryptocurrency platform at the target of AG crackdown

March 13, 2023 Robert Abruzzese

NY Attorney General Letitia James. Photo: Hans Penink/AP.

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CITYWIDE — Attorney General Letitia James has filed a lawsuit against KuCoin, a virtual currency trading platform, for falsely representing itself as an exchange and for failing to register as a securities and commodities broker-dealer.

James’ office was able to buy and sell cryptocurrencies on KuCoin in New York despite the company not being registered in the state. The lawsuit aims to prevent KuCoin from operating in New York until it complies with the law.

“One by one my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk,” said Attorney General James. “Today’s action is the latest in our efforts to rein in shadowy cryptocurrency companies and bring order to the industry.

“All New Yorkers and all companies operating in New York have to follow our state’s laws and regulations,” James continued. “KuCoin operated in New York without registration and that is why we are taking strong action to hold them accountable and protect investors.”

KuCoin is a popular virtual currency trading platform that allows investors to buy and sell cryptocurrency through its website and app. It is known for offering a wide range of cryptocurrencies, including ETH, LUNA, and TerraUSD (UST), which are securities and commodities. This lawsuit 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 the petition, 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. Therefore, KuCoin was required to register before selling ETH, LUNA, or UST. However, KuCoin failed to register as a securities and commodities broker-dealer in New York and sold unregistered securities in the form of KuCoin Earn, its lending and staking product.

New York law requires securities and commodities brokers to register with the state, which KuCoin failed to do. KuCoin also failed to comply with a subpoena issued by the OAG to provide more information about its digital asset trading activities in the state.

Through her lawsuit, Attorney General James seeks a court order that stops KuCoin from misrepresenting that it is an exchange, prevents the company from operating in New York, and directs KuCoin to implement geo-blocking based on IP addresses and GPS location to prevent access to KuCoin’s mobile app, website, and services from New York.

This lawsuit is part of the Attorney General’s efforts to regulate cryptocurrency platforms and protect investors in New York.

Last month, Attorney General James brought action against CoinEx for similarly failing to register as a securities and commodities broker. In January, Attorney General James and a multistate coalition recovered $24 million from the cryptocurrency platform Nexo for operating illegally and sued the former CEO of Celsius for defrauding investors and concealing the company’s dire financial condition. In June 2022, Attorney General James warned New Yorkers of the dangerous risks of investing in cryptocurrencies after the market reached then-record lows.

Also in June, Attorney General James reached a nearly $1 million settlement with crypto platform BlockFi Lending LLC for offering unregistered securities. Last March, Attorney General James issued a taxpayer notice to virtual currency investors and their tax advisors to accurately declare and pay taxes on their virtual investments. In October 2021, Attorney General James directed unregistered crypto lending platforms to cease operations for not registering with the state.

Attorney General James urges New Yorkers who have been affected by deceptive conduct in the virtual assets market to report these issues to the OAG. She also encourages workers in the cryptocurrency industry who may have witnessed misconduct or fraud to file a whistleblower complaint with her office, which can be done anonymously.