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New York Attorney General Letitia James became the first regulator in the US to claim in court that ethereum is a security in a lawsuit against exchange KuCoin.
Seychelles-based KuCoin has been operating in New York without registering as a securities and commodities broker-dealer, James alleged in the suit.
KuCoin facilitates trading of ETH, James added, “a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH.” The exchange should have registered before offering ETH, LUNA and TerraUSD — all of which fall under the securities classification, according to James.
However, the NYAG may not have the final say on the issue. Rostin Behnam of the CFTC told the Senate Agriculture Committee as recently as Wednesday that ETH is in fact a commodity, not a security.
“We would not have allowed the Ether futures product to be listed on a CFTC exchange if we did not feel strongly that it was a commodity asset,” he explained.
SEC leaders have made similar statements. In 2018, William Hinman, the then-Director of Corporate Finance at the SEC, said in a speech that both bitcoin and ETH are not securities. His justification was that bitcoin is “decentralized” and ETH, despite its 2014 initial coin offering, had become “sufficiently decentralized” over the past four years to make it a non-security.
The Office of the State Attorney General (OAG) confirmed KuCoin’s alleged unlawful actions because OAG Detective Brian Metz has been transacting on the exchange from New York since May 2022, the lawsuit states.
KuCoin’s lending and staking product, KuCoin Earn, is also an unregistered security offering, the lawsuit alleges.
The OAG served KuCoin a subpoena on Jan. 10, 2023 but respondents did not reply and failed to appear to testify on the date specified in the subpoena, the lawsuit claims.
The lawsuit is similar to a suit brought against exchange CoinEx in February alleging the exchange offered trading services for tokens including AMP, LUNA and LBC, all of which the Attorney General’s office says are securities.