The SEC and other U.S. regulators have, in recent weeks, turned on the heat in regard to crypto exchanges – an understandable, if a somewhat brusque, response to the series of crypto bankruptcies across 2022.
The latest to come under their scope is CoinEx.
Selling Securities Without a License
According to a press release published by the AGs’ office, CoinEx – a Hong Kong-based crypto exchange also known as Vino Global Ltd – was found to be selling cryptocurrencies that U.S. regulators had previously identified as securities and/or commodities.
The cryptocurrencies mentioned by name are LUNA, AMP, LBC, and RLY, which the AG’s office was able to purchase using a New York-based IP – a state in which CoinEx is not a licensed broker.
The office of the attorney general is therefore requesting a geo-location block of CoinEx for residents of New York and a ban on the exchange’s mobile app.
According to Letitia James, CoinEx’s business practices put investors at risk by not registering their business accurately.
“Our laws are designed to protect New Yorkers, and when companies ignore them, they put residents, investors, and businesses at risk. The days of crypto companies like CoinEx acting like the rules do not apply to them are over. My office will continue to protect New York investors and ensure our state’s laws are followed.”
I’m suing cryptocurrency platform @coinexcom for illegally operating in New York without registering with the state.
⏰Wake-up call: crypto platforms must play by the same set of rules as everyone else.
— NY AG James (@NewYorkStateAG) February 22, 2023
CoinEx Responds to Allegations
Shortly after the lawsuit was announced, CoinEx attempted to clarify the situation – although it is unclear if the company responded directly to regulators or not.
In a thread published and then deleted by CoinEx on Twitter, an exchange spokesman promised to address the AG’s lawsuit as soon as possible and stated that the firm has always prioritized compliance in all jurisdictions where it is active.
However, this contradicts an earlier incident involving CoinEx, according to court documents. They reveal that the Office of the Attorney General had previously sent a subpoena to CoinEx’s offices, requesting more data on the exchange’s crypto trading activities – a subpoena that the company allegedly ignored.
“CoinEx was compelled by subpoena to appear for an examination under oath on January 9, 2023, and failed to appear […] CoinEx’s non-appearance is prima facie proof that CoinEx has engaged in the [mentioned] fraudulent practices.”
The outcome of the court case, while probably not setting a legal precedent due to similar cases occurring recently, will doubtless be a reminder to all crypto exchanges to ensure complete compliance at all times.