On June 15, 2023, the New York Office of Attorney General (NYOAG) announced a Stipulation and Consent Order providing for “restitution” amounting to $1,172,971.50 from Vino Global Limited d/b/a CoinEx (CoinEx) and $626,133.88 in penalties to the state because CoinEx allegedly “unlawfully represented itself as an exchange” in violation of New York’s Martin Act. The underlying lawsuit against CoinEx was filed by the NYOAG in February. In response to this lawsuit, the Hong Kong-based CoinEx immediately informed its US-based clients that it would completely withdraw its exchange platform and services from the United States.
In her press release, the NYAG states: “Unregistered crypto platforms pose a risk to investors, consumers, and the broader economy.” Of note, no specific NY investor is referenced as being a victim of CoinEx’s activities in New York state. Rather, a NYOAG investigator created “an account with CoinEx using a computer with a New York-based IP address to buy and sell digital tokens although CoinEx was not registered with the state.” Moreover, the “restitution” obtained by the NYOAG simply required that each investor “be refunded the amount of cryptocurrency or the cash equivalent of the cryptocurrency they held in their accounts as of April 25, 2023.”
In other words, the customers of CoinEx got back what was in their accounts and not any monies lost when using the exchange services of CoinEx. Indeed, CoinEx was already voluntarily refunding and closing out U.S. accounts months earlier. CoinEx was also required to cease and desist from servicing New York customers and was required to implement geoblocking to prevent New York IP addresses from accessing their platform – something CoinEx was already planning on doing for all potential U.S. customers.
To that end, the NYOAG press release mentions that “CoinEx is also prohibited from creating any new accounts for U.S. customers and existing U.S. customers can only withdraw their crypto from the platform.” This statement is interesting for two reasons. First, CoinEx by its own accord discontinued providing services to U.S. customers in February – when the NYOAG lawsuit was first filed and long before the recent resolution of this lawsuit. Second, the NYOAG has no means to supplant the SEC’s authority or to prohibit exchanges from operating in other states.
Even though it may not be true, it certainly looks good from a PR perspective to say CoinEx was “prohibited” from operating in the U.S. based solely on the NYOAG’s enforcement action. Interestingly, the NYOAG’s crypto efforts were never strictly limited to “protecting” investors. In March 2022, the NYOAG issued a taxpayer notice to virtual currency investors and their tax advisors to accurately declare and pay taxes on their virtual investments.
The recent actions of the SEC coupled with those of New York State – the undisputed financial capital of the country if not the world, point in one direction, namely that the centralized financial institutions that currently control most levers of the financial markets have voted against decentralization and it is now up to the regulators to enforce such decision.