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KuCoin Faces Regulatory Heat Over the Sale of Unregistered Securities in New York

2 mins
Updated by Dean
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In Brief

  • New York state Attorney General Letitia James announced that she has filed suit against cryptocurrency exchange KuCoin after she was able to buy and sell crypto on the exchange, which is not registered in New York.
  • New York regulator says the suit is the first time a regulator has claimed that ether is a security in court.
  • This is James’s “eighth action to rein in shadowy cryptocurrency platforms,” according to her statement.
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KuCoin, the Seychelles-based crypto exchange, came under the regulatory radar. Herein a New York State Attorney targeted the exchange over unregistered activities.

US regulators continue to take steps to crack down on crypto exchanges operating without proper registration with local authorities. In this case, New York Attorney General Letitia James has filed a lawsuit against the cryptocurrency exchange KuCoin, according to the March 09 announcement.

Per the legal document, Kucoin, one of the largest exchanges, sold and purchased unregistered securities and commodities to users. 

Regulating the Space

The lawsuit also categorized Ethereum as an unregistered security. Per the document, users could ‘buy and sell popular virtual currencies, including ETH, LUNA, TerraUSD (UST), securities, and commodities. ‘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 filing stated. 

The classification of the second-largest cryptocurrency under security or not has been up for debate. Additionally, the Seychelles-based exchange issued and sold its KuCoin Earn product, ‘which the complaint labels a security, without registering as a securities broker or dealer.’ 

Nevertheless, such steps aim to inject some certainty for crypto exchanges to operate within a region. James asserted: 

“Today’s action is the latest in our efforts to rein in shadowy cryptocurrency companies and bring order to the industry. All New Yorkers and all companies operating in New York have to follow our state’s laws and regulations. KuCoin operated in New York without registration, and that is why we are taking strong action to hold them accountable and protect investors.”

Taking Actions Against Exchanges

The US regulators have the authority to sue crypto exchanges if they believe they have violated securities laws. This often occurs by selling securities and commodities without proper registration. Of late, the same regulator sued CoinEx for violating regulations. 

The two main regulatory bodies are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). They are responsible for trading securities and commodities in the US. Under US law, any entity that wants to sell securities or commodities must register with the appropriate regulatory body. Also, follow specific rules and regulations. Failure to do so can result in legal action by the regulatory authorities.

Crypto exchanges that offer trading in securities or commodities may be subject to these rules and regulations, depending on the specific nature of the traded assets. For example, if a crypto asset is deemed a security, the exchange that trades that asset must register with the SEC.

Overall, the SEC and the CFTC have been more active in regulating the crypto industry in recent years. They have issued warnings and taken legal action against companies and individuals they believe have violated securities laws or engaged in fraudulent behavior.

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Shubham Pandey
An engineer and an accountant by degree, Shubham ventured into the crypto world to pursue his passion. He believes digital currencies will redefine our economies in the decades to come, which drove his transition into this industry. Shubham has a multicultural background, having lived across India, Qatar, Oman and Australia. He is currently settled in Melbourne. As a News Writer, Shubham aims to actively analyze trends in the crypto world and break it down for everyday readers.