New York’s Supreme Court received the first big Ether security complaint.
New York Attorney General Letitia James sued KuCoin for selling commodities and securities without registration.
It claims KuCoin traded Ether, the second-largest cryptocurrency, unlawfully.
NYAG Declares Ethereum Security
KuCoin marketed Ether (ETH), Terra (LUNA), and TerraUSD (UST) illegally, according to the Supreme Court of New York case. “
The lawsuit states that the three cryptos “represent investments of money in common companies with rewards to be earned principally from the efforts of others”—the same conditions for defining a security under the Howey Test.
James claimed that Ether’s security is linked to Vitalik Buterin and the Ethereum Foundation, a non-profit that develops the Ethereum ecosystem. In 2014, the organization held an Initial Coin Offering (ICO) to raise funds by selling Bitcoin for Ether when the network opened in 2015.
The Ethereum Foundation’s website argues that many users “view it as a digital store of wealth because the generation of new ETH slows down over time,” promoting Ether as an investment. Many term Ether “ultrasound money” since the September Merge, when Ether generation decreased considerably.
Merge Backfires
The NYAG claims the improvement strengthened Ether’s security. As early and substantial Ether holders, Buterin and the Ethereum Foundation helped Ethereum migrate to a proof of stake consensus mechanism, which benefited them.
“The shift to proof-of-stake significantly impacted the core functionality and incentives for owning ETH, because ETH holders now can profit merely by participating in staking,” read the filing.
Thursday’s lawsuit is the first big SEC accusation that Ether is a security.
Last month, SEC chairman Gary Gensler said his agency likely regulates “anything except than Bitcoin.” In September, he suggested that Merge made Ethereum’s native cryptocurrency more secure.
Crypto enthusiasts disagree with the NYAG’s claims. Neeraj K. Agrawal from crypto policy think tank CoinCentre responded to the news with a priorly published set of arguments on the matter –claiming that “the value of ether and the functionality of the Ethereum network is not reliant on the [Ethereum] Foundation.”
Last month, Coinbase CEO Brian Armstrong said that staking is not securities transactions.
Paxos’ BUSD stablecoin may be an unregistered securities, according to the SEC’s February Wells notice.
