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Web3 is Going Just Great

...and is definitely not an enormous grift that's pouring lighter fluid on our already smoldering planet.

Created by Molly White. Subscribe to her newsletter for weekly recaps.

KuCoin pleads guilty, pays nearly $300 million fine in criminal case

The KuCoin cryptocurrency exchange has pleaded guilty to a charge filed against them in March that they were operating an unlicensed money transmitting business. Since at least 2019, the company willingly ignored US laws requiring them to implement anti-money laundering and know-your-customer programs. Since its founding in 2017, the business permitted around 1.5 million users based in the US to use the platform, despite its lack of registration or compliance with US laws.

According to US prosecutors, "KuCoin was used to transmit billions in suspicious transactions and potentially criminal proceeds, including proceeds from darknet markets and malware, ransomware, and fraud schemes."

KuCoin has agreed to pay $297 million in penalties, and will leave the US market for at least two years. Furthermore, two company founders who were also charged will no longer work for the company. Prosecutors reached a deferred prosecution agreement with the two founders, who will also forfeit around $2.7 million each.

Theme tags: Law

KuCoin and founders criminally charged

The cryptocurrency exchange KuCoin and two of its founders, Chun Gan and Ke Tang, were indicted in the Southern District of New York on charges of conspiring to operate an unlicensed money transmitting business and conspiring to violate the Bank Secrecy Act. Both founders are Chinese citizens, and neither has been located or arrested.

According to prosecutors, they tried to conceal that the exchange had customers from the United States in order to claim that they were exempt from US anti-money laundering laws. They also marketed KuCoin as a KYC-optional exchange where customers from the US could operate unverified accounts.

The charges against the founders carry maximum sentences of five years in prison.

Theme tags: Law

KuCoin fined $22 million in New York

The KuCoin cryptocurrency exchange has agreed to a settlement in which it will pay a $22 million fine and ban residents of New York state from its platform. The New York Attorney General sued KuCoin in March, alleging they had been serving New York customers despite not being registered in the state.

KuCoin has admitted to allowing New Yorkers to trade securities and commodities on the platform, and representing themselves as an "exchange" without having registered as such.

In addition to paying the fine, KuCoin has agreed to shut down all New Yorkers' accounts in the coming months and prevent residents of the state from signing up for new accounts.

Theme tags: Law

UK's Financial Conduct Authority warns of Huobi and KuCoin

The United Kingdom's Financial Conduct Authority (FCA) has added another 146 entries to its "warning list" of unauthorized firms, including the crypto exchanges Huobi and KuCoin. The additions pertained to new regulations that require crypto firms who want to run promotions in the country to register with the FCA, and comply with regulations aiming to prevent misleading advertisements.

The warning list was created to notify potential users of these firms, and to inform them that losses related to the use of those platforms won't be covered by the UK's compensation scheme.

Huobi has claimed they don't operate or promote in the UK, while KuCoin gestured towards adjusting its practices in the UK. Firms on the warning list may be subjected to more serious enforcement actions in the future, including fines or even prison time.

Theme tags: Law

New York Attorney General sues KuCoin, claims ETH is a security

New York Attorney General Letitia James announced a lawsuit against the Seychelles-based KuCoin crypto exchange, after finding that users could trade on the exchange despite it not being registered in the state.

The NYAG took the additional step of alleging that ETH is a security. Many have argued that Bitcoin and ETH, the native token of Ethereum, are not securities because they are "sufficiently decentralized". The NYAG, however, wrote in the press release announcing the lawsuit that, "This action is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security. The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH."

The NYAG is also going after KuCoin for offering a lending and staking product, a category of product that has recently been a focus of various enforcement actions. They claim that KuCoin did not comply with a subpoena.

Theme tags: Law
Blockchain tags: Blockchain: Ethereum
Tech tags: lending

Auditing firm cuts ties with crypto clients, deletes Binance's "proof of reserves" report they issued days prior

The accounting firm Mazars Group has ceased working with cryptocurrency clients, including Binance, KuCoin, and Crypto.com. A statement from the firm attributed their decision to "concerns regarding the way these reports are understood by the public".

On December 7, a branch of Mazars Group had published a "proof of reserves" report for Binance — though it only accounted for Bitcoin, and did not reflect liabilities for Binance's lending product. On December 9, Crypto.com also published a "proof of reserves" report that had been produced by the firm.

As of December 16, the Binance audit — which had been hosted on Mazar's website — had been deleted.

"Proof of reserves" reports have been offered by various cryptocurrency exchanges in lieu of proper audits, but have reasonably failed to reassure many customers of those exchanges. These reports do not involve the scrutiny that would be applied by a full audit — they only reflect a snapshot of assets at a point in time, and do not show a firm's liabilities.

Theme tags: Hmm, Shady business

South Korea moves to block sixteen unregistered crypto exchanges

The South Korean Financial Services Commission (FSC) reported to investigators sixteen unregistered crypto exchanges that were serving Korean users and hosting events marketing to Koreans. The exchanges include MEXC, KuCoin, CoinW, CoinEX, ZB.com, Bitglobal, Bitrue, Poloniex, BTCEX, Phemex, XT.com, Pionex, BTCC, DigiFinex, AAX, and ZoomEX.

Although the FSC informed the exchanges they needed to register and report their activities, the exchanges did not comply. The FSC has moved to block access to these exchanges in the country, including by asking communications authorities to block access to the exchanges' websites. The FSC pointed to the risk of user data leaks and money laundering as motivations for their action.

Those operating unregistered exchanges in the country could face up to five years imprisonment or a ₩50 million ($37,900) fine, and be barred from registering in the country for five years.

Theme tags: Law, Shady business

KuCoin announces "Anti-FUD Fund" to track down and sue critics

Those in the crypto ecosystem have long claimed to embrace the principles of censorship resistance and freedom of speech, but apparently some of them draw the line at speech that's critical of them. Johnny Lyu, CEO of the KuCoin crypto exchange, announced on Twitter that the company would be creating an "Anti-FUD Fund" to combat "FUD" — an acronym for "fear, uncertainty, and doubt" that has come to be used to describe any criticism or tough questions directed at crypto projects.

In his Twitter thread, Lyu outlines how the fund will "implement Anti-FUD education", "motivate and acclaim industry leaders and influencers who are always responsible, delivering trusted information", and "effectively trace FUDers who intentionally spread FUD and take legal actions against them if needed".

Something tells me his list of "industry leaders and influencers" to "acclaim" won't include those who are rightfully skeptical of crypto.

Theme tags: Hmm

Ontario Securities Commission settles with Bybit, bans and fines KuCoin for securities violations

The Ontario Securities Commission (OSC) accused crypto trading platforms Bybit and Kucoin of operating unregistered platforms and offering unregistered securities to Ontarian investors.

Bybit opted to settle with the OSC, disgorging about CA$2.5 million (US$1.9 million) and has begun working with the OSC to become compliant.

OSC accused KuCoin of not complying with the investigation, and permanently banned the exchange from operating in Ontario. The OSC also levied a CA$2 million (US$1.5 million) fine against the exchange.

Theme tags: Law

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