The New York Attorney General (NYAG) is suing crypto exchange KuCoin for selling “unregistered securities,” including Ethereum (ETH).

In a lawsuit filed on Mar. 9, NYAG Letitia James alleged that KuCoin failed to register as a securities and commodities broker-dealer and falsely represented itself as an exchange.

Despite the fact that KuCoin is not registered in the state, New York-based investors were able to use the platform to buy and sell cryptocurrencies, stated the complaint. These currencies include LUNA, UST and ETH.

“This action is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security,” read a press releas from James’ office.

The claims made in the lawsuit are built around the reasoning that ETH is a speculative asset, just like LUNA and UST, because it relies on third-party developers to provide a profit to ETH holders.

The complaint pointed to ETH’s Initial Coin Offering (ICO), transition to Proof-of-Stake and the fact that it was promoted as an investment by developers as testament to that fact. 

“The shift to proof-of-stake significantly impacted the core functionality and incentives for owning ETH because ETH holders can now profit merely by participating in staking,” stated the complaint.

The lawsuit names ETH creator Vitalik Buterin and Ethereum Foundation members among those who retain significant holdings in the asset following its ICO. It refers to a declaration on the Ethereum Foundation website that many users see ETH “as an investment, similar to Bitcoin and other cryptocurrencies” as proof that the cryptocurrency was promoted as an investment by its developers.

Unsurprisingly, members of the crypto community took issue with James’ arguments on the subject.

“ETH has a broadly decentralized value proposition. Millions of apps, developers, and tokens on Ethereum. NYAG’s argument that ETH is a security because holders expect profits from the efforts of Ethereum devs and founders to promote ETH for investment and transition to PoS is nonsensical [sic],” tweeted crypto lawyer Mike Selig.

Selig also shared his insights on the U.S. Securities and Exchange Commission’s (SEC) stance on crypto assets in an episode of Unchained Premium.