In a suit filed on Thursday 9 March, New York State Attorney General Letitia James has labelled Ether as a security. The suit against Crypto exchange KuCoin, states that the exchange has been operating in the state without registering as a securities and commodities broker-dealer.
The suit listed Ether, LUNA and TerraUSD stablecoin as securities that KuCoin allows its users to trade. The attorney-general argued in the official press release of the petition 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. Because of that, KuCoin was required to register before selling ETH, LUNA, or UST,”
This claim was based on the Martin Act – a severe New York anti-fraud law that empowers NYAG to investigate securities fraud and bring civil or criminal actions against violators of the Act. Apart from the claim that Ether is a security, James also alleges that KuCoin falsely parades itself as a crypto exchange since it isn’t registered with SEC or the CFTC in the United States.
NYAG Seeks To Stop KuCoin Operations in New York
The office of the NYAG allegedly conducted an investigation on KuCoin prior to the petition. The investigation revealed that indeed, KuCoin allowed New York residents to trade digital assets on its platform as well as participate in KuCoin Earn, it’s lending and staking product.
After serving the company a subpoena by email and in person with no response from KuCoin, NYAG is seeking to stop the company from operating in New York “KuCoin operated in New York without registration, and that is why we are taking strong action to hold them accountable and protect investors,” she said in a statement.
This is just one of several regulatory backlashes that KuCoin has faced in many countries. South Korea listed it as an illegal crypto exchange, and current indications show that it doesn’t have a license to operate in Seychelles where its headquarters are.
Is Ether a Security?
There are differing views on whether Ether is a security, but the NYAG law suit is the first to claim that the second largest cryptocurrency by market capitalization is a security. While the Securities and Exchange Commission (SEC) chair Gary Gensler had hinted that Ether was a security, the US Commodity Futures Trading Commission (CFTC) believes Bitcoin and Ether are commodity assets.
The future of Ether may depend on the outcome of this case. If the the NYAG wins, the status of the asset could be changed permanently from being a commodity asset to a security. This is a label that Ripple has been is trying to defend its token XRP from since December 2020.
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