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New York AG sues KuCoin, claims Ether is a security

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(Kitco News) - New York Attorney General Letitia James filed a lawsuit against the KuCoin cryptocurrency exchange on Thursday, alleging the platform failed to register as a securities and commodities broker-dealer and is falsely representing itself as an exchange.

KuCoin “offered, sold and purchased and effected transactions in cryptocurrencies that were commodities and securities within New York, without having been registered as a commodity broker-dealer and securities broker or dealer in New York,” the suit filed with the New York State Supreme Court argued.

KuCoin is a Seychelles-based digital asset trading platform that launched in 2018 and consistently ranks among the top five crypto exchanges by trading volume.

One interesting fact to note about the lawsuit is that it refers to Ether (ETH) and several other tokens as unregistered securities the exchange has listed in the state. This declaration stands in direct opposition to recent statements by Commodity Futures Trading Commission (CFTC) Chair Ristin Behnam that Ether is a commodity.

“ETH’s development and management is largely driven by a small number of developers who hold positions in ETH and stand to profit from the growth of the network and the related appreciation of ETH,” James argued in the filing.

The lawsuit also cited the initial coin offering (ICO) conducted by the Ethereum Foundation as evidence of a securities offering. Similar to the capital formation purpose of security offerings in the U.S., the documents from the ICO describe it “as a means of promoting the development of the Ethereum blockchain by paying expenses incurred by developers, paying for legal contingencies, research, and further development.”

These arguments could have broader implications for the crypto industry far beyond any punitive damages New York stands to collect from KuCoin.

According to James, KuCoin allegedly failed to comply with a subpoena from her office by refusing to appear on Jan. 23, which led to her office filing the lawsuit.

The attorney general's office wants KuCoin to “identify all members of the public within the State of New York with or for whom Respondents purchased or sold securities or commodities, at any time from six years prior to the date of this Verified Petition, including their names, email addresses, date of all transactions, associated IP address used at the time of each transaction, and last log-in date and time.”

New York to charge crypto companies for their supervision

The suit is seeking to have KuCoin barred from doing business in the State of New York and pay back “all revenue obtained from their fraudulent and illegal sales and purchases of securities and commodities to and from New Yorkers.”

Penalties should be large enough to deter illegal, deceptive, fraudulent conduct but should not “be so disproportionate to the offenses as to be excessive,” James wrote.

In order to block services for New York Residents, the Attorney General is asking the court to “issue an order directing KuCoin to implement geoblocking based on IP addresses and GPS location to prevent access to KuCoin’s mobile app, website, and services from New York.”

Kitco Crypto reached out to KuCoin for comment, and they responded with the following statement: “At present, KuCoin has yet to receive any legal documents regarding this incident. KuCoin will continue to closely monitor the situation and will be addressing this matter through legal means if needed.”

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