• New York State Attorney General Letitia James has filed a lawsuit against KuCoin, alleging that the Seychelles-based crypto exchange is violating securities laws by offering tokens – including ether – without registering with the attorney general’s office.
• The suit is the first time a regulator has claimed in court that ether is a security.
• The Martin Act, an 102-year-old anti-fraud law gives James powers to investigate securities fraud and bring both civil and criminal actions against violators.
New York Attorney General Alleges Ether Is a Security
The New York State Attorney General Letitia James recently filed suit against KuCoin, alleging that the Seychelles-based crypto exchange is violating securities laws by offering tokens – including ether – without registering with the attorney general’s office. This marks the first time that a regulator has claimed in court that ether is considered a security under the Martin Act, an 102-year-old anti-fraud law which grants James powers to investigate securities fraud and bring both civil and criminal actions against violators.
The press release said this lawsuit was part of ongoing “efforts to crack down on unregistered cryptocurrency platforms.” Despite Securities and Exchange Commission (SEC) Chairman Gary Gensler hinting that his agency might consider ether to be a security, its sister regulatory agency – the Commodity Futures Trading Commission (CFTC) – have long maintained that both bitcoin and ether are commodity assets.
The Martin Act grants sweeping power to New York’s attorney general for prosecuting crimes related to various financial instruments such as stocks and bonds as well as commodities like oil or foodstuffs. It allows for greater prosecutorial flexibility than federal statutes such as those enforced by the SEC because it does not require proof of intent or reliance on misrepresented information in order to secure convictions.
This lawsuit is part of ongoing efforts by regulators around the world to crack down on unregistered cryptocurrency platforms in order ensure compliance with local laws regarding financial services offerings like stocks, bonds or cryptocurrencies. To date, many countries have yet to create comprehensive regulations governing these activities although some jurisdictions have taken steps towards doing so through frameworks such as Japan’s Financial Services Agency (FSA).
This case could set an important precedent for future legal action involving cryptocurrencies since it will likely determine whether or not Ethereum can be considered a security under U.S law. Furthermore, if Kucoin is found guilty then other exchanges may face similar repercussions due their failure comply with applicable regulations.