Ether is a security, says New York attorney general in lawsuit against popular cryptocurrency exchange KuCoin

New York Attorney General Letitia James is taking another swing at the digital asset industry with a lawsuit against KuCoin, one of the largest and most popular crypto exchanges.

James alleges KuCoin cannot legitimately claim to be an exchange because it isn’t registered with the US Securities and Exchange Commission or properly designated by the Commodity Futures Trading Commission as required under New York law. “Today’s action is the latest in our efforts to rein in shadowy cryptocurrency companies and bring order to the industry,” James said in a statement.

James said the suit is among the first in which a state regulator is claiming in court that ether, the second-largest crypto token by value, is a security. “One by one, my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk,” James said.

The question of what cryptoassets regulators consider to be securities – and thus, subject to prevailing rules and laws and the jurisdiction of the SEC – is being interrogated on multiple fronts and is the subject of active litigation.

“SEC cases against Ripple, LBRY and former Coinbase employee Ishan Wahi will be critical for clarifying which types of digital-asset transactions are considered securities,” Bloomberg Intelligence analyst Elliott Stein wrote in a note on Wednesday, prior to the KuCoin lawsuit.

“The SEC’s suit against Genesis and Gemini will likely find their Earn lending programme is a security. We think Coinbase’s staking programme is vulnerable to an SEC action, as Kraken’s was. The SEC’s Terraform complaint previews actions against stablecoins, while a Dapper Labs “Top Shot Moments” case shows how NFTs can be securities,” Stein added.

KuCoin, based in the island nation of Seychelles, failed to register as a securities and commodities broker-dealer in New York and falsely represents itself as an exchange, according to the lawsuit filed Thursday in state court.

The suit comes two weeks after James filed a nearly identical complaint against crypto platform CoinEx. Another suit against crypto companies Nexo Inc and Nexo Capital Inc resulted in a settlement in January of up to US$24 million for New York and nine other states.