New York Attorney General Letitia James has filed a lawsuit against KuCoin, a cryptocurrency exchange, for allegedly selling securities and commodities without proper registration. The lawsuit was filed on March 9th in the Supreme Court of the State of New York County.
According to the lawsuit, KuCoin, which is based in Seychelles, violated securities law when it “sold, offered to sell, purchased and offered to purchase cryptocurrencies that are commodities and securities” to residents of New York without registering with the attorney general’s office. The lawsuit also alleges that KuCoin issued and sold its KuCoin Earn product, which is classified as a security, without registering as a securities broker or dealer.
The lawsuit claims that KuCoin misrepresented itself as an exchange, since it lacked registration for that function as well. The suit specifically cites Ether (ETH), Terra Luna (LUNA), and TerraUSD (UST) as commodities under both state and federal authority, and KuCoin filed to register as a commodities broker.
Moreover, the lawsuit alleges that “ETH, LUNA, UST, and KuCoin Earn are each securities under Waldstein,” a test established by the New York Supreme Court of Albany County in 1936, as well as under the Howey test. The suit cites the SEC v. LBRY case to support this claim.
According to the statement released by James’s office, “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.”
The lawsuit seeks a permanent injunction against KuCoin “selling and buying securities and commodities to and from New Yorkers.” It also asks the court to demand an accounting of all New Yorkers who have used the exchange and disgorgement of funds illegally obtained from New Yorkers.
This lawsuit is part of James’s “eighth action to rein in shadowy cryptocurrency platforms that disregard our laws and put New Yorkers at risk,” according to her statement.
The lawsuit against KuCoin is significant because it is one of the first times that a regulator has claimed that ETH is a security in court. This claim could have significant implications for the entire cryptocurrency industry.
The Howey test, which was established in a 1946 Supreme Court case, is used to determine whether an investment contract is a security. The test has four elements: 1) an investment of money, 2) in a common enterprise, 3) with an expectation of profit, 4) solely from the efforts of others.
The SEC v. LBRY case, which was cited in the KuCoin lawsuit, applied the Howey test to LBRY Credits (LBC), a cryptocurrency used on the LBRY network. The court found that LBC met the four elements of the Howey test and was therefore a security.
If the court in the KuCoin lawsuit finds that ETH meets the four elements of the Howey test and is therefore a security, it could have significant implications for other cryptocurrencies. Many cryptocurrencies, including Bitcoin and Litecoin, have been classified as commodities by the CFTC. If the court in the KuCoin lawsuit finds that ETH is a security, it could lead to other cryptocurrencies being classified as securities as well.
In conclusion, the lawsuit against KuCoin for selling securities and commodities without proper registration is significant because it is one of the first times that a regulator has claimed that ETH is a security in court. If the court finds that ETH meets the four elements of the Howey test and is therefore a security, it could have significant implications for other cryptocurrencies.
