KuCoin faces a lawsuit for offering crypto trading services in New York without registering

Updated: 10 March 2023

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KuCoin, a well-known cryptocurrency exchange based in Seychelles, recently came under the regulatory radar in the state of New York after the state’s Attorney General, Letitia James, discovered that she can buy and sell cryptocurrencies on KuCoin’s platform. This is a problem because the platform is not registered in the state, and it doesn’t have its so-called BitLicense, which allows exchanges to offer their services within its borders.

KuCoin offered unregistered securities, claims Attorney General

The new move represents another step by the regulators to crack down on digital currency exchanges that operate without registering with the US authorities. In this particular example, the New York Attorney General herself filed a lawsuit against the exchange, which was then announced on the NY AG James’ Twitter account.

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

The document alleges that Kucoin has allowed users in the state of New York to buy and sell unregistered securities and commodities. Interestingly, the lawsuit even categorized Ethereum as an unregistered security, as it says that users could “buy and sell popular virtual currencies, including ETH, LUNA, TerraUSD (UST), securities, and commodities.”

The action represents one of the first lawsuits where a regulator claimed in court that Ethereum — the second-largest cryptocurrency in the entire global crypto industry — is security.

pic.twitter.com/0ZJ9UjyFsU

— db (@tier10k) March 9, 2023

The lack of clarity makes it difficult for crypto companies to abide by the law

Ethereum’s classification has been a matter of debate for a while now. The SEC Chair Gary Gensler has claimed that everything apart from Bitcoin is a security, while previously, the crypto community was under the impression that Ethereum, at least, has been cleared as a non-security. Meanwhile, the CFTC strongly believes that Ethereum is a commodity, so the two regulatory bodies have been clashing regarding the issue.

Apart from that, the Seychelles-based platform also issued and sold its KuCoin Earn product, which was also labeled as a security. But, despite the fact that this is bad news for Kucoin, it does bring certain clarity for crypto exchanges that operate in the region.

Attorney General James said that the action is the latest step in an effort to “rein in shadowy cryptocurrency companies and bring order to the industry.” She added that New York investors and companies operating in the state have to follow the local laws and regulations, and KuCoin operating without registering is a violation of those laws.

This is also not the first incident of this kind, as the same regulator has previously sued CoinEx for violating regulations. For the most part, however, the SEC and the CFTC are the ones responsible for keeping an eye on securities and commodities in the country. However, since the two regulatory bodies cannot agree on which assets are securities and which are commodities, this makes it harder for crypto companies to know which regulator they are supposed to register with.

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