Author: Mia, ChainCatcher
Editor: Marco, ChainCatcher
On March 26, the US Department of Justice once again took action against a cryptocurrency exchange, accusing KuCoin and its two founders, Chun Gan and Ke Tang, of "conspiring to violate the Bank Secrecy Act and conspiring to operate an unlicensed money transmission business," with each charge carrying a maximum sentence of five years in prison. This comes after the case of Binance and its founder Zhao Changpeng, marking another accusation by the US Department of Justice against the founders of a cryptocurrency exchange.
The US Department of Justice stated that GAN and TANG are still at large.
The indictment from the US Department of Justice shows that the KuCoin platform was accused of intentionally concealing the fact that it had a large number of US users and using this customer base to become a leading cryptocurrency exchange. KuCoin and its two founders conspired to operate an unlicensed money transmission business and conspired to violate the Bank Secrecy Act, intentionally failing to maintain an adequate anti-money laundering (AML) program designed to prevent KuCoin from being used for money laundering and terrorist financing, failing to maintain reasonable customer identification procedures, and failing to submit any suspicious activity reports.
US Attorney Damian Williams stated that as a financial institution operating in the United States, KuCoin should comply with the law and assist in combating crime and corrupt financing. KuCoin's failure to implement anti-money laundering policies has made it a haven for illegal money laundering involving billions of dollars, and serves as a warning to other cryptocurrency exchanges that they must comply with the law if they wish to provide services in the United States.
After being sued, a large amount of funds were withdrawn from KuCoin, with the platform experiencing a net outflow of over $600 million in the past 24 hours.
Repeated Expulsion by Regulatory Agencies
As a well-established exchange, KuCoin was founded by GAN and TANG in September 2017 and launched its futures trading platform in July 2019.
Public information shows that the current CEO of KuCoin, Chun Gan, also known as Michael Gan in English, previously served as a technical expert at Ant Group's Ant Financial, a senior professional in financial solutions, and a senior partner at internet giants such as MikeCRM and KF5.COM.
Since its establishment in 2017, KuCoin has become one of the world's largest cryptocurrency trading platforms, with over 30 million customers and a daily cryptocurrency trading volume worth billions of dollars.
KuCoin's website claims to be among the top five cryptocurrency exchanges globally, and according to coinmarketcap data, KuCoin ranks eighth in cryptocurrency derivatives exchanges and seventh in cryptocurrency spot exchanges.
As its market share expanded, KuCoin has increasingly drawn attention from regulatory agencies worldwide.
As early as January 2022, KuCoin began orderly withdrawals of users in mainland China due to regulatory issues.
In June of the same year, the Ontario Securities Commission (OSC) took enforcement action against KuCoin for failing to comply with Ontario securities law, and subsequently, for failing to cooperate with the OSC's investigation, was permanently banned from participating in Ontario's capital markets. The OSC also imposed a fine of 2 million Canadian dollars (1.5 million US dollars) and nearly 100,000 Canadian dollars (77,000 US dollars) in investigation-related costs.
Just two months later, KuCoin was again named by the South Korean government for engaging in unreported illegal business activities and was restricted from providing deposit and withdrawal services to South Korean users.
In 2022 alone, KuCoin lost market share in three regions.
By March 2023, KuCoin received a subpoena from the New York State Attorney General, accused of offering unregistered securities and commodities, and selling unregistered securities through its lending and staking product KuCoin Earn. The court ordered KuCoin to cease operations in New York State.
Furthermore, the US Department of Justice also accused KuCoin of offering some products in New York that violated securities laws, such as the KuCoin Earn financial interest product. Subsequently, in December of the same year, KuCoin paid a $22 million settlement and withdrew from the New York market to resolve the litigation crisis. Since then, KuCoin has once again lost its foothold in the New York market.
Considered Selling
Even before the lawsuit by the US Department of Justice, KuCoin's operations were already in dire straits.
In April 2023, KuCoin's official Twitter account was hacked, and it fully compensated for all verified asset losses caused by social media hacking and false activities. Although there were only 22 transactions involved, the hacking of the official Twitter account undoubtedly posed a major public relations crisis for a global cryptocurrency exchange.
In July of the same year, KuCoin was reported to be laying off nearly 30% of its staff, mainly due to a comprehensive compliance strategy and strict KYC, leading to a decline in profit margins.
In October 2023, KuCoin was included in the Financial Conduct Authority (FCA) "unauthorized" firm warning list in the UK. According to UK regulations, companies allowed to engage in cryptocurrency activities must be registered with the FCA or obtain temporary operating permission. KuCoin also received an operating warning from the UK regulatory authority.
From the hack attack to layoffs, and then to being warned by the UK regulatory agency, undoubtedly exacerbated KuCoin's operational difficulties.
According to Wu Shuo Blockchain News, in 2023, KuCoin had considered suspending operations or selling the exchange. At the same time, to reduce risk, KuCoin accelerated the divestiture of multiple businesses.
In addition, in 2023, KuCoin was not only subject to a criminal investigation by the US Department of Justice but also faced multiple investigations in China.
KuCoin had been the only major offshore exchange not banned from US IP addresses, which brought it significant risk. As early as 2022, data research indicated that KuCoin might face significant pressure from the United States.
According to the US Department of Justice, KuCoin showed a quite negative attitude towards regulation and never submitted any necessary suspicious activity reports. It was not until July 2023, when it learned of the criminal investigation into its activities by the United States, that KuCoin initiated KYC procedures for new customers.
Net Outflow of Over $600 Million in 24 Hours
In response to the lawsuit, KuCoin stated that its platform operations are normal, user assets are absolutely safe, and it is aware of the relevant reports and is seeking details through legal means.
According to on-chain data from Nansen, over the past 7 days, KuCoin has seen a net outflow of $649 million in tokens, with a net outflow of $641 million in the past 24 hours alone.
At the same time, some large asset holders have begun to withdraw funds from KuCoin and transfer their assets to other trading platforms.
According to Lookonchain monitoring, several large asset addresses have already withdrawn funds from KuCoin, with addresses starting with "0x1abc" withdrawing 54 million USDT in the past 9 hours and transferring it to the OKX platform; and addresses starting with "0x5212" withdrawing 32 million USDT in 50 minutes and transferring it to the Bybit platform.
Despite facing pressure from fund outflows, KuCoin still holds a considerable amount of cryptocurrency assets, with a total value of approximately $6.137 billion, including 1.36 billion USDT, 14,353 BTC (approximately $1.01 billion), 107,732 ETH (approximately $389 million), 18.57 million KCS (approximately $231 million), and 955,752 SOL (approximately $182 million).
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