NYAG Charges Cryptocurrency Platform for Registration Failures

The Office of New York Attorney General Letitia James (“NYAG”) charged a cryptocurrency trading platform with failing to register as an offeror, seller or purchaser of securities or commodities within the state. The charges follow a line of recent enforcement efforts by the NYAG against unregistered cryptocurrency platforms. The NYAG noted that its action is "one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security."

In its lawsuit, the AG charged the trading platform with acting in violation of the General Business Law (a/k/a the “Martin Act”) which requires registration with the NYAG for brokers and dealers facilitating the sale of securities and commodities. The NYAG alleged that the trading platform violated the Martin Act by (i) selling and buying cryptocurrency commodities and securities without proper registration, (ii) selling a certain security type which was promoted as a way for investors to “earn stable profits” and a “passive income,” and (iii) representing itself as an “exchange” even though it was not registered as such with either the SEC nor the CFTC.

During its investigation, the NYAG found that at least three other jurisdictions had also taken adverse regulatory action against the trading platform for improper registration, including the Republic of Seychelles, Canada and the Netherlands.

In consideration of the charges against the trading platform, the NYAG asked the Court to (i) issue a permanent injunction, (ii) require the trading platform to provide accounting records of all fees received from New York investors and to prevent New York investors from further access to its website and mobile app, (iii) require the trading platform to pay restitution and disgorgement and (iv) award NYAG costs against each defendant.