Another crypto firm is facing criminal and civil charges as U.S. law enforcement officials continue their campaign to rein in the industry following the November 2022 collapse of FTX.
On Tuesday, the Department of Justice filed criminal charges against KuCoin, a Seychelles-based crypto firm that operates the seventh-largest exchange by spot trading volume, according to CoinMarketCap, along with its two founders. The Commodity Futures Trading Commission added its own civil complaint.
U.S. Attorney for the Southern District of New York Damien Williams is alleging KuCoin has concealed the rampant presence of U.S. users on its platform, taking advantage of the customer base to become one of the world’s largest crypto exchanges in violation of federal law.
“In failing to implement even basic anti-money laundering policies, the defendants allowed KuCoin to operate in the shadows of the financial markets and be used as a haven for illicit money laundering,” Williams said in a statement, adding that the exchange has received over $5 billion in suspicious and criminal funds.
A checkered record
While KuCoin doesn’t have the market dominance or name recognition of Coinbase or Binance, it’s risen to prominence by offering an array of derivatives and spot trading products. The firm has also faced controversy, including for promoting high-yield investment tools even as competitors filed for bankruptcy after the failure of similar offerings. In December 2022, KuCoin CEO Johnny Lyu told Fortune that the platform laid out potential risks to users.
Despite attempts to distance itself from FTX, KuCoin still invited scrutiny from regulators and lawmakers, with Sen. Ron Wyden (D-Ore.) sending a letter to several exchanges, including KuCoin, requesting information for their bankruptcy protocols in the immediate aftermath of FTX’s collapse.
While KuCoin was not technically available to U.S. customers, some did so by using workarounds such as VPNs. In December 2023, New York Attorney General Letitia James settled with the exchange for $22 million after alleging that the firm failed to register as a securities and commodities broker-dealer. “Unregistered offshore crypto platforms pose a risk to investors, consumers, and the broader economy,” James said in a statement at the time.
Tuesday’s charges from the DOJ and CFTC are the latest in a string of enforcement actions against crypto firms. In November, both agencies—along with the Treasury Department—reached a historic settlement for $4.3 billion with top exchange Binance, which still faces a lawsuit from the Securities and Exchange Commission. The DOJ has also charged other crypto firms with violating banking and anti-money laundering laws, including the mixers Tornado Cash and Bitcoin Fog.
According to the indictment, KuCoin has solicited business from U.S. customers through both its spot trading and futures trading platforms since the platform’s 2017 founding, although it never registered as a money transmitting business or futures commission merchant in the U.S. The DOJ alleges KuCoin only instituted a “know-your-costumer” program in July 2023 after being notified of a federal criminal investigation.
The indictment, which includes charges against KuCoin’s two founders, Chun Gan and Ke Tang, who are both citizens of China, further alleges that criminal organizations used the platform to launder their proceeds, including from darknet markets and malware, ransomware, and fraud schemes.
“The regulatory matter related to KuCoin has come to my attention,” CEO Lyu posted on X after the announcement. “While we’re working on it, the platform is unaffected and operating normally as usual.”
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