Another cryptocurrency platform at the target of AG crackdown

Attorney General Letitia James filed a lawsuit Friday against KuCoin, a virtual currency trading platform, for failing to register as a securities and commodities broker and falsely posing as an exchange. Photo: Hans Penink/AP.

THE WHOLE CITY — Attorney General Letitia James has filed a lawsuit against KuCoin, a virtual currency trading platform, for falsely presenting itself as an exchange and failing to register as a stock and commodity broker.

James' office was able to buy and sell cryptocurrency in KuCoin in New York even though the company was not registered in the state. The lawsuit aims to prevent KuCoin from operating in New York until it complies with the law.

“One by one, my office is taking action against cryptocurrency companies that blatantly ignore our laws and put investors at risk,” Attorney General James said. “Today's action is the latest in our efforts to rein in shadow cryptocurrency companies and bring order to the industry.

“All New Yorkers and all businesses that do business in New York must comply with the laws and regulations of our state,” James continued. "KuCoin was operating in New York without registration and that is why we are taking strong action to hold them accountable and protect investors."

KuCoin is a popular virtual currency trading platform that allows investors to buy and sell cryptocurrencies through its website and app. It is known for offering a wide range of cryptocurrencies, including ETH, LUNA, and TerraUSD (UST), which are securities and commodities. This lawsuit is one of the first times a regulator has claimed in court that ETH, one of the largest cryptocurrencies available, is a security.

According to the petition, ETH, like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers to generate profit for ETH holders. Therefore, KuCoin had to be registered before selling ETH, LUNA or UST. However, KuCoin did not register as a stock and commodity broker in New York and sold unregistered securities in the form of KuCoin Earn, its lend-and-stake product.

New York law requires brokers in securities and commodities to register with the state, which KuCoin did not. KuCoin also failed to comply with a subpoena issued by the OAG to provide more information about its digital asset trading activities in the state.

Through her lawsuit, Attorney General James is seeking an injunction preventing KuCoin from misrepresenting that it is an exchange, preventing the company from operating in New York, and ordering KuCoin to implement geo-blocking based on IP addresses and GPS location to prevent access to the KuCoin mobile application, website and services from New York.

This lawsuit is part of the Attorney General's efforts to regulate cryptocurrency platforms and protect investors in New York.

Last month, Attorney General James filed a lawsuit against CoinEx for failing to register as a securities and commodities broker. In January, Attorney General James and a multi-state coalition recovered $24 million from the Nexo cryptocurrency platform for operating illegally and sued the former Celsius CEO for defrauding investors and hiding the company's dire financial situation. In June 2022, Attorney General James warned New Yorkers about the dangerous risks of investing in cryptocurrency after the market hit record lows.

Also in June, Attorney General James reached a nearly $1 million settlement with crypto platform BlockFi Lending LLC for offering unregistered securities. Last March, Attorney General James issued a taxpayer advisory to virtual currency investors and his tax advisers to accurately report and pay taxes on their virtual investments. In October 2021, Attorney General James ordered unregistered cryptocurrency lending platforms to cease operations for failing to register with the state.

Attorney General James urges New Yorkers who have been affected by deceptive conduct in the virtual asset marketplace to report these issues to the Attorney General's Office. He also encourages cryptocurrency industry workers who may have witnessed misconduct or fraud to file a whistleblower complaint with his office, which can be done anonymously.