Kraken files to dismiss SEC lawsuit – ‘dangerous precedent’ for overreach
Crypto exchange Kraken has rejected a November lawsuit from the United States Securities and Exchange Commission, saying it is a “dangerous precedent” for the agency's payment.
On February 22, Kraken filed his motion to dismiss in federal court in San Francisco. In a blog post, Kraken said:
“The SEC's concept is that an investment contract with no contracts, no post-sale obligations, and no interaction between the offeror and the buyer can exist.”
He argued that the theory “has no limitless principle” and would give the SEC “unfettered jurisdiction over businesses and potentially open the floodgates to private securities law claims.”
“It turns a wide range of ordinary assets or commodities, such as sports memorabilia, trading cards, expensive watches or diamonds, into collateral,” the firm added.
(9/10) US crypto exchanges should not be reeling under the onslaught of regulatory enforcement action, while jurisdictions around the world are advancing constructive regulatory laws.
— Dave Ripley (@DavidLRipley) February 23, 2024
The SEC charged Kraken last year with illegally making millions of dollars from “crypto asset securities” transactions and providing “exchange, brokerage, distribution and clearing agency” services without registering with the agency “as required by law.”
The agency also accused Kraken of internal control deficiencies involving $33 billion in client assets linked to mutual funds.
In its motion, Kraken said the SEC failed to allege that the cryptocurrencies traded on the exchange were “investment contracts” under US securities laws because there was no agreement between Kraken's customers and cryptocurrency issuers.
This is really scary. https://t.co/Bv9bgsBCDl
— Michael Arrington ☠️ (@arrington) February 23, 2024
“Kraken's clients did not invest money in an organization. Kraken's clients did not participate in any joint venture with the issuers. And Kraken's clients could not expect to profit from the issuers' efforts,” he argued.
He also argued that the SEC's definition of a security “could make any simple sale of assets with speculative purposes, such as comic books and baseball cards, a “security,” and that the securities rules “never provided the SEC […] Such great power.”
Related: Texas company files court case for SEC crypto authority
Kraken added that the case should be dismissed because of the substantive questions doctrine, a 2022 U.S. Supreme Court decision aimed at Congress passing laws rather than giving powers to regulators.
Other crypto firms, including Binance, Coinbase and Terraform Labs, have cited the doctrine in trying to refute the SEC's lawsuits.
The US Congress is debating how crypto should be regulated, and several bills to regulate the industry are in various stages of development.
Last May, Kraken testified before a congressional hearing focused on crypto regulation that current laws are inadequate and that a framework should be enacted to limit the SEC's powers and cover the Commodity Futures Trading Commission's exchanges.
“The next day, the SEC called Kraken and said it would file a lawsuit,” the exchange said in its latest filing. “And this complaint followed.”
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