Ethereum ETH referred to as a security by NYAG in a lawsuit
Press Release

Ethereum ETH referred to as a security by NYAG in a lawsuit

written by John Murphy | March 10, 2023

The New York Attorney General NYAG- Letitia James referred to the leading crypto Ethereum ETH as security while addressing a lawsuit against Kucoin.

She claimed that the Kucoin crypto exchange violated the Martin act in three ways. The first of the three violations are related to offering and purchasing unregistered securities and commodities. According to the first violation imposed, the Attorney General categorizes Ethereum ETH as security. Thus demonstrating the failure of the exchange to deal with it as such.

When a cryptocurrency is classified as a security it indicates that it must be subject to the rules and regulations designed for the investor’s protection. Furthermore, it must comply with securities laws, such as registration requirements and disclosure obligations. According to that any trading platform or so must be registered with the appropriate regulatory authorities. It should also follow strict rules for trading and custody of these assets.

“Petitioner seeks a permanent injunction to end the ongoing illegal activities of Mek Global Limited and Phoenixfin PTE Ltd., both doing business as KuCoin (hereinafter collectively referred to as “KuCoin”) (…) in violation of General Business Law (“GBL”) § 352 et seq. (the “Martin Act”) and Executive Law”

stated in the lawsuit

The Attorney general of New York claims that the crypto exchange made a violation in a service called Kucoin Earn. Kucoin Earn – a lending and staking service – offered its services without registering with the SEC and CFTC. The New York court ordered the exchange to cease its operational services in New York until they are not completely complying with the laws. As they even failed to disclose required information about their activities despite being subpoenaed by the Attorney General.

“a court order that stops KuCoin from misrepresenting that it is an exchange, prevents the company from operating in New York, and directs KuCoin to implement geo-blocking based on IP addresses and GPS location to prevent access to KuCoin’s mobile app, website, and services from New York.”

From a press release

Reference of Ethereum ETH in the case

The NYAG Letitia James referred to Ethereum ETH and another crypto Terra (LUNA) and UST as security as well in the lawsuit. Furthermore, she stated that she Carried out the Howey test to conclude this. The Howey test has four criteria and these coins fulfill all those, according to NYAG.

The four Criteria include; whether it’s an investment of money, in a common enterprise, an expectation of profit, and profit derived from the other’s efforts.

“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 petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH.”

Press release

The Attorney General said that people invested money to buy ETH, LUNA, and UST, this satisfies the first criterion. For the second, the NYAG claimed that the coins were connected to the management team and their wealth, because of tokens reserved for developers and creators. The lawsuit also explained the third and fourth criteria:

“ETH, LUNA, and UST’s management teams promoted their respective cryptocurrencies as profit opportunities that were contingent on the growth of their respective networks, which would occur in substantial part because of work performed by its founders, developers, and managers.”