Crypto Shockwaves: KuCoin Faces Legal Action, Ether’s Status Challenged
The New York Attorney General has filed a lawsuit against KuCoin, accusing the cryptocurrency exchange of violating securities laws
A regulator claims that Ether is a security, potentially leading to far-reaching implications for the entire industry
The New York State Attorney General Letitia James filed a lawsuit on Thursday against KuCoin, a Seychelles-based cryptocurrency exchange, alleging that the exchange is violating securities laws by offering tokens that meet the definition of security without registering with the attorney general’s office. For investors in ether, this news is particularly alarming, as it marks the first time a regulator has claimed in court that ether is a security.
Background on Ethereum and Ether
Ethereum is a decentralized, open-source blockchain platform that allows developers to build decentralized applications (dApps) and smart contracts. Ether is the cryptocurrency used to pay for transaction fees and computational services on the Ethereum network. Ether is also used as a store of value and a speculative asset, similar to bitcoin.
Allegations Against KuCoin
The lawsuit alleges that KuCoin violated the Martin Act, a 102-year-old New York anti-fraud law that gives the attorney general powers to investigate securities fraud and bring both civil and criminal actions against violators. The attorney general’s office claims that KuCoin is selling unregistered securities via KuCoin Earn, it’s lending and staking product, which includes the sale of ether, the luna (LUNA) token, and terraUSD (UST) stablecoin.
The attorney general’s office argues that ether is considered a security because its value is dependent on the efforts of others, including Ethereum co-founder Vitalik Buterin, and therefore falls under the jurisdiction of the Martin Act.
The lawsuit seeks a court order to stop KuCoin from representing itself as an exchange, prevent the company from operating in New York, and direct KuCoin to implement geo-blocking based on IP addresses and GPS locations to prevent access to KuCoin’s apps and services from New York.
KuCoin did not respond to subpoenas filed by the NYAG’s office served via email and in person. The price of ether was down 8% 30 minutes after the lawsuit was revealed, with the broader crypto market similarly plunging.
Although the Securities and Exchange Commission (SEC) Chairman Gary Gensler has hinted that his agency might consider ether to be a security, the Commodity Futures Trading Commission (CFTC) has long maintained that both bitcoin and ether are commodity assets. The outcome of this lawsuit could have significant implications for the broader cryptocurrency industry and how it is regulated by U.S. authorities.