Monday, February 27, 2023

Attorney general sues CoinEx for failing to register as a broker-dealer

By Suzanne Cosgrove

New York Attorney General Letitia James has sued the cryptocurrency platform CoinEx for falsely representing itself as a crypto exchange and failing to properly register the company with U.S. regulators or with the state of New York, a violation of New York’s Martin Act (People Of The State Of New York, by Letitia James, Attorney General Of The State Of New York, v. Vino Global Limited D/B/A CoinEx, February 22, 2023).

The enforcement action seeks to permanently stop CoinEx from operating in New York through its website and mobile apps and directs CoinEx to implement geo-blocking based on IP addresses and GPS location to prevent access to CoinEx’s mobile app, website, and services from New York.

In addition to offering services on its website, a CoinEx application is available for downloading on mobile phones through marketplaces like the Apple and Google Play stores. CoinEx advertises that its platform supports spot, margin, futures, and other derivatives trading.

Tokens described as securities. “The days of crypto companies like CoinEx acting like the rules do not apply to them are over,” said Attorney General James in a press release. “My office will continue to protect New York investors and ensure our state’s laws are followed.”

Founded in December 2017 by its CEO, Haipo Yang, with headquarters in Hong Kong, CoinEx is a currency trading platform that allows investors to buy and sell virtual currencies, including, but not limited to, Flexa's AMP, LBRY's LBC, Terraform Labs' LUNA, and Rally's RLY tokens—tokens that the attorney general characterized as securities and commodities.

The CoinEx website states its users can “directly trade with third-party payment partners to buy cryptocurrency at a mutually agreed price and payment method” and touts its ability to support “more than 60 fiat currencies for buying mainstream cryptocurrencies.”

Investigation documented. In an affidavit filed with the court, Brian Metz, a senior detective with the New York OAG's Criminal Division, verified that he was able to create an account with CoinEx using a computer with a New York-based IP address in October 2022 that allowed him to buy and sell digital tokens for a fee paid to CoinEx. Metz said on the date of the affidavit, February 19, 2023, the website, and his account remained accessible.

In addition, although CoinEx is based in Hong Kong, Metz found that CoinEx's terms of service, downloaded on May 31, 2022, indicated it was operated by Vino Global Limited, an entity incorporated in the State of Colorado. Haipo Yang was listed on the document as Vino Global’s “incorporator.”

This week’s action is one of a series of crypto-related enforcements pursues by the New York attorney general. They included a lawsuit she filed in January that alleged Alex Mezvinsky, a co-founder of the lending platform Celsius Network LLC, made false and misleading statements about Celsius’s safety to encourage investors to deposit billions of dollars in digital assets onto the platform. The New Jersey-based Celsius filed for bankruptcy in July.

The case is No. 450503/2023.