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New York Attorney General (NYAG) Letitia James, claimed in court that ethereum (ETH) is security and exchanges should register it before offering it for trading.
The AG filed a lawsuit against the crypto exchange KuCoin for allowing investors to buy and sell ETH without registering with the state.
ETH is a security, just like TerraUSD and LUNA – NYAG
AG James stated that ETH is a security, just like TerraUSD (UST) and LUNA, since it is a, “speculative asset that relies on efforts of third-party developers to provide profit to ETH holders.”
According to a press release from March 9, the AG filed suit against KuCoin for its failure to register as a securities and commodities broker-dealer. It is also being charged with falsely representing itself as an exchange, and trading non-registered securities.
I'm suing cryptocurrency platform @kucoincom for illegally operating in New York without registering with the state.
— NY AG James (@NewYorkStateAG) March 9, 2023
This is our eighth action to rein in shadowy cryptocurrency platforms that disregard our laws and put New Yorkers at risk.
The AG seeks to stop KUCoin from operating in New York and shut down its website until it complies with the law, in what she termed as efforts to regulate the cryptocurrency industry.
“One by one my office is taking action against cryptocurrency companies that are brazenly disregarding our laws and putting investors at risk,”
Attorney General Letitia James.
New York laws state that securities and commodities brokers must register with the state. KUCoin is not registered with the Securities and Exchange Commission (SEC) or recognized by the Commodity Futures Trading Commission.
Cryptocurrencies as securities
KuCoin allows investors to buy and sell cryptocurrencies, including ETH, TerraUSD (UST), and LUNA, all of which the AG considers securities and commodities.
The AG argued that since ethereum transitioned to the proof-of-stake consensus, “possession of ETH translates directly to profit potential by earning staking rewards.”
The proof of stake consensus mechanism requires users to stake or “lock” their ETH to keep the network running. The more ETH a user stakes, the more rewards they can earn.
The lawsuit also alleged that KuCoin’s lending and staking product, KuCoin Earn, is an unregistered security offering.
This isn’t the first lawsuit against an exchange sued for offering cryptocurrencies that are not registered as securities for trade, yet they operate like securities according to regulators.
The office of the AG also sued CoinEx in February for offering trading services for tokens, including LUNA, AMP, and LBC, which they considered securities.
The SEC fined crypto exchange Kraken $30 million in the same month because its staking product broke securities laws.
Gary Gensler, the SEC’s chair, may have hinted that the agency has its eyes on ethereum and that bitcoin is the only crypto asset considered a non-security.