Kraken Fights Back Against SEC Lawsuit
Kraken, a major cryptocurrency exchange, is pushing to have the lawsuit filed against it by the US Securities and Exchange Commission (SEC) dismissed. The exchange argues that the SEC is exceeding its regulatory authority by pursuing legal action against Kraken.
Background of the Lawsuit
The SEC filed a lawsuit against Kraken in November 2023, alleging that the exchange had commingled customer funds and listed securities on its platform. The lawsuit accused Kraken of operating as an unregistered securities exchange, broker-dealer, and clearing agency in violation of the Exchange Act.
Kraken’s Response
Kraken has filed a motion to dismiss the SEC’s complaint in the U.S. District Court Northern District of California. In its filing, Kraken argues that the SEC’s decision to sue came shortly after the exchange criticized the agency’s “regulation-by-enforcement approach” during a congressional testimony in May 2023.
“The SEC does not allege fraud. The SEC does not allege consumer harm. The SEC’s sole claims are that Kraken has somehow operated in plain sight for almost a decade as an unregistered securities exchange, broker-dealer, and clearing agency, in violation of the Exchange Act.”
Disputing Allegations Regarding Crypto Tokens
The SEC’s lawsuit listed several crypto tokens on the Kraken platform, including SOL, OMG, MANA, ALGO, and ATOM, claiming that they were securities. However, Kraken argues that none of these assets meet the legal definition of investment contracts and do not fulfill the Howey test. The exchange asserts that these tokens are not securities under the law.
Concerns About Regulatory Overreach
In addition to seeking dismissal of the SEC’s claims, Kraken raises concerns about the Commission’s exercise of broad jurisdictional powers without clear authorization from Congress. The exchange believes that the SEC’s overreach could lead to potential abuse of power.
“But the SEC is moving in the wrong direction. Its theories in litigation are incoherent. We remain committed to doing what we believe is right for our community of clients and innovators […] So today, we are asking the Court to dismiss this case and hand legislative power back to Congress, where it belongs.”
Previous Interactions with the SEC
Kraken has had previous encounters with the SEC. In February 2023, the Commission accused Kraken of conducting an unregistered offering and sale of its crypto-staking services. As a result, Kraken paid a $30 million fine imposed by the agency and discontinued the service.
Similarly, other major cryptocurrency exchanges such as Binance and Coinbase have also filed motions to dismiss SEC lawsuits against them.
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