NYAG lists Ethereum (ETH) as security in lawsuit against Kucoin
- Ethereum (ETH) has been branded as a security by the NYAG alongside two other coins
- The New York AG wants to stop Kucoin’s operations in the region via the lawsuit
The New York Attorney General Letitia James has sued the crypto exchange – Kucoin. The AG claims that Kucoin violated the Martin Act in three ways, with the first one being offering and purchasing unregistered securities and commodities. Here, AG James claims Ethereum (ETH) to be a security.
The lawsuit stated,
“Petitioner seeks a permanent injunction to end the ongoing illegal activities of Mek Global Limited and Phoenixfin PTE Ltd., both doing business as KuCoin (hereinafter collectively referred to as “KuCoin”) (…) in violation of General Business Law (“GBL”) § 352 et seq. (the “Martin Act”) and Executive Law”
The NYAG also alleges that the crypto exchange violated securities law through its Kucoin Earn – a lending and staking service. In addition, the lawsuit asserts that Kucoin failed to register with the SEC and CFTC. Moreover, the exchange failed to disclose information related to its activities in the state even despite the OAG issuing a subpoena.
Notably, the attorney general wants Kucoin to stop operating in New York via the lawsuit, along with blocking its website till it complies with the law of the land. A press release on the same read,
“a court order that stops KuCoin from misrepresenting that it is an exchange, prevents the company from operating in New York, and directs KuCoin to implement geo-blocking based on IP addresses and GPS location to prevent access to KuCoin’s mobile app, website, and services from New York.”
The case against Ethereum (ETH)
Moreover, in her case against the crypto exchange, AG James brands Ethereum (ETH), Terra (LUNA, and UST as securities. The AG used the Howey Test to classify them as securities. The NYAG demonstrated that the coins fulfilled all four criteria. The press release said,
“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 petition argues 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.”
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The four prongs are determining whether it is an investment of money, in a common enterprise, an expectation of profit, and profit derived from the other’s efforts.
The attorney general claims that the coins satisfied the first criterion as people invested money to purchase ETH, LUNA, and UST. For the second criterion, the NYAG claimed that coins were in “common enterprise with each cryptocurrency’s management team.” AG James claims that the “fortune of the token holder” is connected to the management’s wealth. This was because of tokens reserved for developers, creators, and management teams. Explaining the third and fourth criteria, the lawsuit said,
“ETH, LUNA, and UST’s management teams promoted their respective cryptocurrencies as profit opportunities that were contingent on the growth of their respective networks, which would occur in substantial part because of work performed by its founders, developers, and managers.”