• The New York Attorney General Letitia James has filed a lawsuit against the cryptocurrency exchange KuCoin in the Supreme Court of the State of New York, claiming that KuCoin illegally sold Ether (ETH), Terra (LUNA), and TerraUSD (UST) on its platform.
• The filing claims that these cryptos „represent investments of money in common enterprises with profits to be derived primarily from the efforts of others“.
• It also alleges that Ether was promoted as an investment directly on the Ethereum Foundation’s website.
NYAG Alleges Ethereum is a Security
The New York Attorney General Letitia James has recently sued cryptocurrency exchange KuCoin for selling both commodities and securities on its platform without necessary registration. One of the „securities“ it alleges KuCoin to have illegally sold is Ether – the second largest cryptocurrency next to Bitcoin. Per the lawsuit filed with the Supreme Court of the State of New York, James argued that Ether’s security status is largely related to its relationship to Ethereum creator Vitalik Buterin and the Ethereum Foundation, a non-profit dedicated to developing the Ethereum ecosystem.
Initial Coin Offering
The foundation launched an Initial Coin Offering (ICO) in 2014 to fund its operations, whereby participants sold their Bitcoin in return for promises of future Ether when the network launched in 2015. It also alleges that Ether was promoted as an investment directly on the Ethereum Foundation’s website, through various other marketing channels, as well as via press releases and conferences. The filing further states that since its launch, Ether has been traded extensively on several major exchanges including Kraken and Binance US.
Specifically, the filing claims that these three cryptos – ETH, LUNA and UST – „represent investments of money in common enterprises with profits to be derived primarily from the efforts of others“ – which meets criteria for classifying a security under what’s known as Howey Test. This test determines whether or not something qualifies as a security based upon four criteria: 1) there is an investment; 2) there is an expectation of profit; 3) there is a common enterprise; 4) profit comes from another person’s efforts rather than your own.
Investor Protection Act
In addition to violating state securities laws by failing to register tokens being offered or sold within New York State borders, KuCoin allegedly violated provisions under New York’s Martin Act – otherwise known as ‘The Blue Sky Law’ – which requires registration before offering any security for sale within state boundaries . According to James‘ office , this law was enacted in 1920 “to protect investors from fraudulent practices by requiring sellers or brokers who offer new stocks or bonds for sale within [New York] State shall first apply for approval“.
This lawsuit serves as yet another reminder that cryptocurrencies are subject to existing financial regulations – including securities laws – regardless if they are explicitly categorized one way or another by government bodies such as Securities Exchange Commission (SEC). As more governments begin recognizing digital assets such as Bitcoin & ether as legitimate forms of payment and assets themselves , it will be interesting how their regulations evolve over time .