New York Attorney General (NYAG) Letitia James asserted in court that ethereum (ETH) is a security and that exchanges should register it before offering it for trading.
The AG filed a lawsuit against cryptocurrency 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, as it is a “speculative asset that relies on the efforts of third-party developers to provide ETH holders with profits.”
According to a Press release As of March 9, AG filed a lawsuit against KuCoin for failing to register as a stock and commodity broker. It is also charged with misrepresenting itself as a stock exchange and trading in unregistered securities.
AG is seeking to prevent KUCoin from operating in New York and shut down its website until it complies with the law, in what it calls efforts to regulate the cryptocurrency industry.
“One by one, my office is taking action against cryptocurrency companies that blatantly ignore our laws and put investors at risk.”
Attorney General Letitia James.
New York law requires brokers in securities and commodities 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 to be securities and commodities.
The AG argued that since Ethereum transitioned to proof-of-stake consensus, “owning ETH directly translates to earning 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 is not the first lawsuit against an exchange sued for offering cryptocurrencies that are not registered as securities for trading, but operate as securities according to regulators.
The AG’s office also sued CoinEx in February for offering token trading services, 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 violated securities laws.
SEC Chairman Gary Gensler may have hinted that the agency has its eyes on ethereum and that bitcoin is the only crypto asset that is considered to be a non-security.
