Ether, the second-largest cryptocurrency by market value, took a hit as the New York State Attorney General, Letitia James, designated it as a security in the legal battle against KuCoin. The attorney general filed a lawsuit against the cryptocurrency exchange, alleging that it had been operating without registering as a securities and commodities broker-dealer in the state.
This is the first regulatory lawsuit that claims Ether to be a security, along with LUNA and TerraUSD stablecoin, which were also classified as securities.
The classification of Ether as a security was based on the Martin Act, a 102-year-old anti-fraud law, which considers the cryptocurrency’s market value to depend on the actions of others, including its co-founder, Vitalik Buterin.
The lawsuit alleged that KuCoin falsely represents itself as an exchange and offers unregistered securities in the form of its lending and staking product, KuCoin Earn. KuCoin operates from Seychelles and is not registered with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) in the United States.
The case against KuCoin was built by the attorney general’s office with its first-hand experience on the crypto platform. They created a KuCoin account using a computer with a New York IP address and then bought and sold digital tokens, for which the platform charged a fee.
The prosecutors also successfully deposited cryptocurrencies on the KuCoin Earn product, and the platform also changed the fees for that.
While the classification of many cryptocurrencies as securities remains in question, the CFTC has maintained its position that Bitcoin and Ether are commodity assets. However, the SEC Chairman, Gary Gensler, recently hinted at the agency’s position to consider Ether a security.
