A lawsuit allegedly targeting illegal cryptocurrency platforms hits Ethereum. One of the leading exchanges was trading unregistered securities, which unsurprisingly include Ethereum.
Ether like a stock?
Letitia James, New York State Attorney General, has extended the arm of justice against cryptocurrency exchange KuCoin. On Thursday, she filed a lawsuit accusing the Seychelles-based company of violating securities laws by offering tokens, including Ether, which she says meets the definition of a security, requiring special registration in the process.
The lawsuit marks the first time that the regulator bringing the case to court believes Ether is a security. Although the chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has suggested that his agency may consider Ether as such, another regulator, the Commodity Futures Trading Commission (CFTC), has long considered both Bitcoin and Ether to be commodity assets.
In a lawsuit, however, Letitia James is in no doubt. All because of the Martin Act. This 102-year-old New York anti-fraud law, gives the Attorney General the power to investigate fraud in this case. Thus, according to the prosecutor, Ether is considered a security, since the value of ETH depends on the actions of others, including Vitalik Buterin – the cryptocurrency’s co-founder.
It is not only Ethereum that has come under fire
As a result of the ongoing investigation, KuCoin was accused of selling unregistered securities, including Ethereum (ETH), the Luna token (LUNA) and the stablecoin TerraUSD (UST), which caused an 8% drop in the price of ETH within just 30 minutes of the lawsuit’s disclosure. The NYAG office thus made the following argument:
“The petition argues that ETH, like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers to provide profit to ETH holders. For this reason, KuCoin was required to register before selling ETH, LUNA or UST.”
KuCoin was also accused of selling unregistered securities through its lending and staking products, and the attorney general’s office was able to set up a KuCoin account based in New York to buy and sell digital tokens.
More KuCoin problems
This is not the first time KuCoin has run into problems. In the past, South Korean regulators and the Dutch Central Bank also accused the exchange of illegal business activities without proper registration.
New York State Attorney General Letitia James is seeking a court order that will prevent KuCoin from representing itself as an exchange and ban it from operating in New York. The injunction also requires KuCoin to implement a geo-blockade so that local users will not be able to access the platform.