For a good while, CoinEx Exchange was an effective swap tool and trading platform for many to engage in a number of different alt coins. While big platforms played with the traditional crypto names, CoinEx allowed users to enter into and gain value from various other coins that were not as capitalized or were far more esoteric. It opened up a number of crypto avenues for people to explore the crypto world more, as well as be able to trade in more obscure token without having to use DeFi swaps. Unfortunately, The New York Attorney General also decided that CoinEx made a juicy, low-resistance target to make a display of regulatory enforcement.
For a bit of background, CoinEx is not a U.S. business. The platform is based in Honk Kong and is accessed online. Users sign up for an account and can actively trade without much in the way of identification unless they reach a certain value amount, which is a pretty high threshold for the average user to work under without worrying. However, for whatever reason, CoinEx was targeted by New York State, which sued the platform and company as a state lawsuit under the New York state Martin Act. Yes, you read that correctly. An international platform for crypto trading based in another country was sued in a state court that, essentially, had no jurisdiction except on the argument that New York state citizens may or may not have used the platform to trade unregulated securities. So, one would think, shouldn't the NYAG be suing the given New York users instead? And why would a platform based in Hong Kong give a flying flip, especially about some state law written in 1921 that only applies to activity in New York state?
Apparently, in July 2020, the New York state appellate court system heard and decided that the 1921 state law on fraud was applicable to crypto online, regardless of type and where it might be located. That case, a lawsuit against BitFinex, was also on the basis of harm done to New York citizens. The key linkage was that the activity occurred through Internet Service Providers or ISPs located physical in New York state (traced by IP address). The people trading never should have been able to do so, and the exchange was responsible for preventing them (despite the fact that no one had legally associated crypto online with anything in New York state at the time).
Of course, after this case, the NYAG went on the rampage looking for other easy targets to sue, gain headlines, and look like an effective enforcer of securities regulations in New York state. Again, New York sued Coinseed on a similar argument, causing that platform to go out of business. So, here we are now with CoinEx, and for some reason they felt obligated to respond to the lawsuit as well as settle it in favor of New York to make the matter go away. CoinEx, by legal agreement, is required to:
- Ban anyone with a New York state IP address from using the CoinEx platform.
- CoinEx also can't allow anyone else in the U.S., whether in New York or not, from opening new accounts.
- And existing U.S. accountholders can only withdraw existing funds versus do anything to add to them.
CoinEx legally wasn't bound by any of the above prior to the agreement to bar U.S. traders in general, but because it has now voluntarily executed the settlement agreement, the platform can't get out of the sweeping restriction either. In short, even though a user is in Texas or California, they have been legally represented by New York state in the matter without ever asking for that representation or the settlement results. It is a classic Big Government move without representation.
CoinEx has remained silent on the matter since agreeing to the settlement, likely bound to keep quite by the terms as well. Or the Hong Kong platform just doesn't want to be bothered anymore by U.S. regulators, essentially freezing out the U.S. entirely, part and parcel. And while the NYAG is now running the media circuit, chalking up the win as another big protection of the consumer, the rest of the U.S. just had its legal rights taken away in the matter through lawyer-maneuvering. No one is going to speak up or sue New York state on the matter either, mainly, because no one on the U.S. understands what they just lost.
The principle of jurisdiction is one that has been a foundation in U.S. law, and states have for years been bound by it, especially when fiddling with interstate commerce. However, crypto is such an anomaly, no one in the know sees it as a product or service. It's just some weird Internet thing that seems like a scam and probably should be shut down because the banks say its a problem for them. This sort of nonsense of regulation by lawsuit is the same game being played by the Securities Exchange Commission (SEC) as well. And if people don't get their rears in gear and wake up, crypto is pretty much going to be wiped out in the next five years through a wave of bureaucracy and settlement attacks.
In the meantime, the lawyers are laughing at how easy it is to kill the blockchain.
