Kucoin Sued by New York Attorney General Over Securities Sales

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  • Kucoin has been sued by the Office of the New York State Attorney General over an alleged sale of securities
  • The suit refers to Kucoin’s sale of UST, LUNA and ETH
  • The OAG is also concerned over the exchange’s Earn programme

Crypto exchange Kucoin was last night hit with a lawsuit by the Office of the New York State Attorney General (OAG) Letitia James over allegations that it is selling unlicensed securities. The lawsuit, which mentions ETH, LUNA and UST in particular, accuses the exchange of “repeatedly and persistently” breaching the Martin Act, which prohibits anyone from selling securities without a license. It also alleges that Kucoin “further failed to comply with an OAG subpoena issued…by failing to appear for testimony to address the office’s concerns. That the case mentioned Ethereum specifically is interesting, given that it has become the subject of hot debate since converting to a proof-of-stake consensus mechanism.

OAG Says Ethereum is a Security

Adams set out her claims in a press release which summarized the OAG’s concerns:

The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH. Because of that, KuCoin was required to register before selling ETH, LUNA, or UST.

This lumping of ETH in the same bracket as the infamous Terra USD and LUNA debacle shows just how serious the OAG believes the case is, with the filing itself making it very clear how it believes Ethereum fits into this category:

(Vitalik) Buterin and the Ethereum Foundation retain significant influence over Ethereum

and are often a driving force behind major initiatives on the Ethereum blockchain that impact the functionality and price of ETH. Most relevant here, Buterin and the Ethereum Foundation played key roles in facilitating the recent fundamental shift of the transaction verification method from proof-of-work to proof-of-stake.

Indeed, Securities and Exchange Commission chair Gary Gensler stated as much when Ethereum converted in September, and it has taken just six months for action regarding Ethereum to come.

Kucoin Ignored Subpoena

It isn’t just the fact that Kucoin sold UST and LUNA and is still selling ETH that has got the OAG all worked up, however. It also claims that its Kucoin Earn program, its lending and staking product through which users can earn up to 86% interest, represents another sale of securities, while it’s also angry that Kucoin representatives didn’t respond to a subpoena issued over the matter on January 23.

The OAG wants Kucoin to pay disgorgement totalling its earnings through the sales of these securities, geo-blocking to prevent New York residents from being able to use its services. Kucoin has yet to respond to the charges or even mention them on social media, but it can be assumed that it is working on a defense that will come today.

While a loss would obviously be bad news for Kucoin, it could be worse news for Ethereum if a U.S. judge rules that it is a security.