The New York Attorney General’s office is suing the KuCoin cryptocurrency exchange for allegedly breaching state securities and commodities laws.
In the lawsuit, Attorney General Letitia James shockingly claims that, in addition to Terra (LUNA) and TerraUSD (UST), which were previously asserted by the United States Securities and Exchange Commission, Ethereum (ETH), the second-largest cryptocurrency by market capitalization, is a security.
“This action is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security,” today’s announcement read. “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.”
The NYAG accuses KuCoin of “falsely promoting itself as an exchange” when, in reality, it is a “securities and commodities broker-dealer,” per the lawsuit.
By employing IP addresses and GPS data to geo-fence KuCoin’s website, it tries to block access to the New York exchange.
Based on its “trust score,” the Seychelles-based exchange is ranked fifth among cryptocurrency exchanges by CoinGecko and 17th globally in terms of the 24-hour trading volume.
Almost anywhere in the world, including the United States, users of KuCoin may buy and trade cryptocurrencies like Bitcoin and Ethereum.
The business was formerly referred to as “the most sophisticated and secure cryptocurrency exchange,” but in 2020, it was the victim of a $150 million breach.
Because users can now get money for holding ETH, among other things, the complaint claims that it qualifies as a security.
The complaint states that after adopting the proof-of-stake consensus, having ETH equals straight to receiving staking rewards for financial gain.
Last year, Ethereum switched to a proof-of-stake blockchain. This consensus method calls for users to “lock up” or stake” their native cryptocurrency, ETH, to maintain the network.
Given the recent focus that authorities have placed on staking services, the timing of the case is especially noteworthy. Only last month, the SEC penalized well-known US exchange Kraken $30 million for allegedly breaking securities laws with its staking services.
Moreover, SEC Chairman Gary Gensler has frequently said publicly that he believes Bitcoin is the sole cryptocurrency asset that qualifies as a non-security, indicating that Ethereum may be on the Commission’s radar.
The recent action by Attorney General Letitia James is part of a tough campaign by American authorities against the cryptocurrency sector.
The state of New York, which has among of the nation’s strictest rules on cryptocurrencies, sued the cryptocurrency exchange CoinEx last month for failing to register as a broker-dealer for securities and commodities.