The Seychelles-headquartered crypto exchange KuCoin agreed to cease operations in a settlement with New York’s Office of the Attorney General (NYAG). The crypto exchange agreed to $16.7 million in restitution, with another $5.3 million owed to the regulator’s office.
KuCoin Enters $22M Settlement Besides Exiting New York
The $22 million settlement arose from the charges levied against the crypto exchange by New York’s Attorney General, alleging KuCoin’s involvement in the illegal offering of unregistered securities and commodities.
The settlement mandates the firm to pay all New York-based users $16.7 million in refunds for their crypto transactions. The legal filings detail that the Seychelles-headquartered company should set the $5.3 million civil penalty to the Attorney’s office.
The filings submitted to the court captured KuCoin’s admission of operating a crypto exchange platform. As such, KuCoin facilitates users in acquiring and selling cryptocurrencies categorized as commodities and securities as per New York State laws.
Although the settlement yields a substantial admission, the phrasing partially realizes the initial objective harbored by the New York Attorney General when filing the charges in March. The NYAG aimed to utilize the case against KuCoin to boldly illustrate Ethereum’s classification as security relative to New York’s law.
The NYAG indicated during the March filing that it marked the initial incident when a regulator claimed the second-ranked crypto by market capitalization is a security.
New York Restrictive Policy Against Cryptos
The regulator argued that Ethereum (ETH) is similar to LUNA and UST, which NYAG labels as speculative assets relying upon third-party developers to generate profit for its holders.
Tuesday’s settlement missed out on admission from KuCoin that any of the crypto offerings qualified as a security. The noncommittal perspective surfaced as the platform indicated the existence of some tokens purchased and sold by users as either commodities or securities.
The NYAG downplayed the nature of concessions by KuCoin, instead labeling the end substantial. The settlement indicated that the crypto exchange would remain inaccessible to users with New York IP addresses. The NYAG estimated that the crypto exchange served over 177,000 customers from New York State.
The NYAG Letitia James reiterated the crypto firms’ obligation to mirror other financial institutions in abiding by the rules. She added that the attorney’s office is upbeat about holding those contravening the rules accountable for their wrongdoing.
James restated taking legal action against any crypto firm that brazenly violates the law, thereby jeopardizing the savings and investments of New Yorkers.
The $22 million settlement by KuCoin underscores New York’s stance as running the most restrictive policy against cryptos. Crypto exchange Kraken had in 2015 lamented the New York approach when exiting the state.
Regulators Action Against Non-compliant Crypto Firms
Kraken exited the state to protest the adoption of BitLicense following the enactment of crypto registration laws. In particular, Kraken labeled the regulations as abominable and cruel.
The sudden implosion of the FTX crypto exchange in November 2022 attracted action from lawmakers and federal regulators.
The move became necessary upon the revelation of digital wealth frozen and perhaps lost following the bankruptcy of FTX, which warranted legal action.
Besides attempting to formulate new crypto rules, regulators have leveled several charges against FTX founder Sam Bankman-Fried, Coinbase, and Binance.
The jury found Bankman-Fried guilty of all charges and awaits sentencing next year. Binance and its lead, Changpeng Zhao, took a guilty plea in a $4.5 billion settlement and the immediate departure of the chief executive.
Binance has since then blamed weaker controls that are outmatched by the accelerated growth in operations.
The noncompliant crypto firms are likely to suffer huge settlements at the federal and state level. Coinbase is already battling charges alleging commingling of unregistered functions. Kraken recently joined the recent list of crypto exchanges facing legal charges.
In particular, other states will likely replicate the BitLicense regulation in New York. In October, California led the pack by approving crypto regulation laws scheduled for implementation by July 2025.
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