Last Updated on March 11, 2023 by Bitfinsider

New York Attorney General Letitia James has sued digital asset exchange KuCoin for breaking state securities and commodities rules, naming ether, among other currencies, as unregistered securities the exchange has listed in the state.

KuCoin “offered, sold, and bought cryptocurrencies that were commodities and securities within New York, without being listed as a commodity broker-dealer and securities broker or dealer in New York,” James claims in a lawsuit filed against the Seychelles-based company on Thursday.

Ethereum, the second-largest cryptocurrency by market capitalization, is also named as an unregistered asset by James and her administration. This reasoning may have wider ramifications for digital assets than the punitive damages that New York may receive from KuCoin.

“ETH’s development and administration are primarily controlled by a small number of developers who hold positions in ETH and stand to benefit from the network’s growth and the corresponding appreciation of ETH,” the suit submitted with the New York state Supreme Court claims.

The Ethereum Foundation’s initial token offering was also mentioned as proof of a securities offering. According to the complaint, papers from the initial token offering characterize it “as a means of supporting the development of the Ethereum network by covering costs paid by coders, paying for legal risks, research, and further development.” This is analogous to the capital formation goal of security sales in the United States.

According to New York’s attorney general, ICO documents advertised ether as “a digital store of value because the production of new ETH slows over time.”

In addition, James claims that KuCoin failed to cooperate with a subpoena issued by her office by declining to present on January 23, 2023.

New York state wants KuCoin banned from doing business in the state, which is one of the biggest cryptocurrency markets in the United States, and to give back money earned from offerings in the state. The attorney general’s office also wants KuCoin to “identify all members of the public within the State of New York with or for whom Respondents purchased or sold securities or commodities, including their names, email addresses, date of all transactions, associated IP address used at the time of each transaction, and last log-in date and time, at any time from six years prior to the date of this Verified Petition.”