Lawsuit against crypto exchange KuCoin

KuCoin could again see a crypto exchange fingered for trading securities.

KuCoin could again see a crypto exchange get its fingers burned over trading securities. The indictment says it also involves Ethereum.

When the word "security" comes up, crypto trading platforms shudder in turn. Whether cryptocurrencies are considered securities under U.S. law is one of the most controversial regulatory questions. Without a clear answer, the rule is: when in doubt, give the plaintiff the benefit of the doubt. With KuCoin, another platform now has to answer for trading securities. The complaint demands a halt to all activities in New York state "until the company complies with the law".

KuCoin: Securities trading violations?

According to Attorney General Letitia James, KuCoin misrepresents itself as a crypto exchange without "registered with the Securities and Exchange Commission as a national securities exchange nor properly designated by the Commodity Futures Trading Commission". Corresponding services like trading crypto assets and offerings for lending and staking would thus be illegally offered, James says.

Although KuCoin isn't registered in New York, the company remains active there. The same goes for Canada, the Netherlands, and the Seychelles, where KuCoin also lacks a license. Moreover, KuCoin had "not complied with a subpoena from the AG and provided no further information about its digital asset trading in this state".

All services must therefore be halted, and KuCoin must temporarily pull back from New York by court order. Accordingly, the company would need to set up a geo-block based on IP addresses and GPS locations to block access to KuCoin's mobile app, website, and services from New York.

Ethereum labeled a security

The AG makes clear that the offered cryptocurrencies are securities. Namely naming Ethereum, she says: "This case is one of the first times a regulator in court has asserted that ETH, one of the biggest cryptocurrencies out there, is a security." Ether is, like LUNA and UST, a speculative asset that relies on others' efforts to deliver profits to ETH holders. As such, KuCoin should have registered to sell it.

But final valuations are still pending. The U.S. Securities and Exchange Commission (SEC) reiterated its view that Ether should be classified as a security after the Ethereum blockchain moved to Proof of Stake. The Commodity Futures Trading Commission has disputed that."