KuCoin Vs Government: Will KuCoin Founders Be Imprisoned?

KuCoin and its founders, Chnu Gan and Ke Tang, have been charged by federal prosecutors for various regulatory issues.

Kucoin is being accused of operating a business that is involved in exchanging money without a proper license. They are also accused of purposely neglecting to create an appropriate program to prevent illegal financial activities, which is against the law. However, it is essential to understand what KuCoin is before diving deep into the charges set by the U.S. government.

What is KuCoin?

KuCoin is a cryptocurrency exchange that facilitates the buying and selling of cryptos. Michael Gan and Eric Don founded it. Michael began coding at the age of eight and founded his first startup at the age of 16. 

KuCoin was Introduced to the crypto world by Eric Don in 2013. After he realized that there were no beginner-friendly exchanges at that time when he tried to sell some on Mt. Gox. Moroever, that led Michael and Eric to create KuCoin, a system that supports every layman. Officially launched in 2017, KuCoin became one of the largest crypto exchanges in the world. 

It offers leveraged tokens designed to generate a multiplied profit of the asset by trading shares of leveraged tokens. These tokens are named after the currency type, direction of trade (long or short), and the multiple of profit.

Furthermore, leveraged tokens do not have an expiration date or negative value. Besides, the risk of liquidation is absent regardless of the token price change. However, Fund managers manage these tokens.

The Lawsuit Filed by U.S. Authorities

KuCoin and its two founders are charged with violating U.S. money laundering laws. The charges accuse KuCoin of violating the Bank Secrecy Act and running a money transfer business. Furthermore, along with associated conspiracy offences, the founders Chun Gan and Ke Tang face conspiracy allegations.

On Tuesday, the U.S. Commodity and Futures Trading Commission brought charges against KuCoin. These were brought for its involvement in unlawful digital asset derivatives trading and multiple breaches of the Commodity Exchange Act.

Gan and Tang to Face Prison?

KuCoin representatives are investigating allegations against two nationals, Gan and Tang. These two could face up to 10 years in prison if found guilty. Moroever, the company has stated that it is committed to complying with regulations in all countries.

The challenge we're facing is not unique to KuCoin but rather typical growth and regulatory issues encountered by emerging industries. Early-stage development often sees regulatory gaps, but as the industry matures, we move towards and embrace compliance and standardization.

— Johnny_KuCoin (@lyu_johnny) March 27, 2024

KuCoin’s CEO, Johnny Lyu, addressed the issues in a statement on the X platform, stating that despite efforts to address them. Furthermore, the platform remains operational without any disruptions. In addition, He reassured users that their assets are secure with KuCoin.

Indictment Uncovers the Mystery

An indictment that has been unsealed claims that Gan, Tang, and KuCoin were aware of their Anti-Money Laundering (AML) responsibilities in the US. Additionally, despite this knowledge, they chose to disregard these requirements. Moreover, KuCoin actively sought business from US customers, yet the three parties willingly disobeyed the laws.

Authorities say that the company did not require customers to provide any identifying information until July 2023. That year it finally rolled out a KYC program after being informed about a federal criminal investigation into its activities. Even then, the KYC program only applied to new customers.

Kucoin Skipped Regulatory Concerns, Authorities

In addition, KuCoin never filed any required suspicious activity reports, never registered with the CFTC as a futures commission merchant. Moreover, through at least the end of 2023, never registered with FinCEN as a money-transferring business.

According to the indictment, Gan, Tang, and KuCoin “affirmatively attempted to conceal the existence of KuCoin’s US customers” in order to make it appear that the exchange was exempt from US AML and KYC requirements.

KuCoin has been used as a vehicle to launder large sums of criminal proceeds, including proceeds from darknet markets and malware, ransomware, and fraud schemes,” say authorities. Moreover, It is due to KuCoin’s willful failure to maintain the required AML and KYC programs.

According to US Attorney Damian Williams, the defendants are accused of not implementing even the most basic anti-money laundering policies. This in the end resulted in KuCoin operating covertly in the financial markets. Moreover, the platform was allegedly used as a sanctuary for money laundering activities. Additionally, over $5 billion was received by KuCoin and more than $4 billion was sent in suspicious and criminal funds.

The SEC’s Measures To Protect The Retailors From The Crypto Scams

KuCoin has been charged by the CFTC with running an illicit digital asset derivatives exchange, as per the agency’s own civil enforcement action. However, SEC Chair Gary Gensler emphasized in a document that advancements in technology. Moreover, the communication has caused shifts in markets, particularly in the unpredictable world of crypto markets where noncompliance and investor risks are prevalent. 

The staff member responsible for managing inquiries and complaints regarding fraud related to asset securities was requested by the Office of Investor Education and Advocacy. 

The SEC’s Office of the General Counsel also required two more positions to support its whistleblowing program, which has seen a significant increase in volume. When looked upon, this is to help with the rising number of civil and administrative litigation filed against the Commission.

The Importance of Regulations in the Crypto Industry

In the world of cryptocurrencies, crypto enthusiasts argue that regulatory bodies like the SEC attempt to control something they do not understand. However, research reports worldwide indicate that the crypto world is rife with scams. 

One media outlet article showed that cryptocurrency users lost nearly $2 billion to scams in 2023 alone. These reports demonstrate how government regulation is critical when dealing in such markets. Prominent corporate leaders share similar views. 

The traditional financial world, which relied on 3 parties, is now being overtaken by a technology that enables direct transactions between individuals. It is a concern for the government, which wants to protect the retail investor. However, it is important to note that the government cannot simply accept any new tender that gets away with the name of ‘technology.’ 

Summary

KuCoin has been charged with violating US laws on money laundering. The charges accuse it of violating the Bank Secrecy Act and running a money transfer business. The government is concerned about protecting retail investors as technology enables direct transactions between individuals, overtaking traditional financial institutions.

Disclaimer

The views and opinions stated by the author or any people named in this article are for informational purposes only. They do not establish financial, investment, or other advice. Investing in or trading in stocks, cryptos, or other related indexes comes with a risk of financial loss.