Kraken Moves to Dismiss SEC Lawsuit on Regulatory Grounds

Kraken Challenges SEC Lawsuit

Kraken, a prominent cryptocurrency exchange, has put forth a motion to dismiss a lawsuit initiated by the U.S. Securities and Exchange Commission (SEC). The SEC had previously accused the exchange of operating without the proper registration, but according to Kraken, their activities are more aligned with commodity trading, not securities, hence not subject to the same regulations.

Commodities or Securities?

In their defense, Kraken underscores that the SEC did not bring forth allegations of fraud or consumer harm. Instead, the SEC's case hinges on the premise that Kraken acted as an unregistered securities exchange, broker-dealer, and clearing agency for nearly a decade. Kraken refutes the claim by arguing the digital assets in question should not be classified as investment contracts, drawing parallels to how collectibles like comic books or baseball cards are investments but not subject to the Exchange Act.

Debating the Howey Test

The exchange further states that the SEC's complaint does not meet the criteria of the Howey Test, a legal standard for identifying securities. Kraken disputes the SEC's belief that cryptocurrency issuers' public statements have led to an expectation of profits from customers, likening the anonymity and market functioning of the relevant cryptocurrencies to that of bitcoin and ether, which currently have derivatives products trading. Kraken also asserts that the SEC's action stretches beyond its jurisdiction. However, Kraken has not responded to the SEC's claims regarding the commingling of customer and corporate funds.