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KuCoin Settles Lawsuit: What Does This Mean for non-US Exchanges?

Last Updated December 13, 2023 4:12 PM
Josh Adams
Last Updated December 13, 2023 4:12 PM
Key Takeaways
  • New York’s Attorney General has agreed with KuCoin on a $22 million fine.
  • The exchange will also cease operations in the state.
  • For other exchanges, the message of compliance-or-else is clear.

Cryptocurrency exchange KuCoin has agreed to stop operating in New York and pay $22 million in fines and restitution, the state’s Attorney General Letitia James announced  on Tuesday, December 13. The settlement resolves a lawsuit filed in March alleging the Seychelles-based exchange violated state laws by failing to register as a securities broker-dealer and falsely claiming to be a licensed crypto exchange.

For crypto exchanges, it is yet another sign that the US will continue to apply existing securities laws to crypto assets.

KuCoin and New York State Come to a Settlement

Attorney General James said: “Unregistered offshore crypto platforms pose a risk to investors, consumers and the broader economy.

“I will continue to take action against any company that brazenly disregards the law and jeopardizes New Yorkers’ savings and investments.”

Under the terms of the agreement, KuCoin will refund $16.7 million to nearly 178,000 New York-based investors who used its platform to trade cryptocurrencies like Ethereum (ETH) and LUNA. The company will also pay $5.3 million in fines to the state of New York.

The lawsuit claimed KuCoin allowed New York residents to open accounts and trade crypto tokens that should be registered as securities. This included KuCoin’s own “Earn” product. NY State sees that as an uninsured investment pool. KuCoin also falsely marketed itself as a licensed crypto exchange when it did not have the required registrations.

Not the First Time

Regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) oversee crypto trading platforms under the federal laws KuCoin is accused of violating. The charges mirror similar actions  against crypto exchanges. For instance, Nexo paid $24 million to settle a multi-state lawsuit in January.

Attorney General James has made regulation of the crypto industry a priority during her tenure. The KuCoin case is the latest in an push to extend investor protections to the digital asset market using existing state laws. With this settlement, KuCoin now joins companies, such as Bitfinex, that have run afoul of state regulators. Bitfinex paid $18.5 million  in 2021 to settle charges of illegal cryptocurrency trading.

James, who is also behind a New York case against Donald Trump , stated the deal with KuCoin will enable New Yorkers to recover their investments and prevent KuCoin from jeopardizing other investors.

The company must cease operations in New York within 90 days and cooperate with law enforcement inquiries from U.S. agencies in the future. Crypto industry observers say the exodus of major players could slow mainstream adoption. On the other hand, regulators argue tighter rules now will protect consumers down the road.

What Does This Mean for Non-US Exchanges?

Essentially, foreign broker-dealers  must comply with the same regulations as domestic firms when doing business in the US market. According to the SEC , crypto exchanges like KuCoin and Coinbase come under that category.

Registration involves filing detailed disclosures, passing exams, implementing supervision policies, and joining a self-regulatory organization like FINRA. Strict net capital rules also apply based on the scope of a non-US firm’s activities and customers. Individual US states—like New York—may impose additional registration and bonding requirements as well.

On top of that, the SEC and many state regulators are rejecting the notion that cryptocurrency is wholly different or new. As far as they’re concerned, most crypto assets are securities. Therefore, if you are selling unregistered securities, you could be sued by a state or federal regulator.

For better or worse, the Wild West days appear to be ending.

Attorney General Letitia James’ lawsuit against KuCoin for illegally trading securities shows states are also asserting jurisdiction over foreign platforms. Her statement that “crypto companies should understand they must play by the same rules” suggests New York will not tolerate them exempting themselves from registration.


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