Kraken, in its legal defense against a lawsuit from the United States Securities and Exchange Commission (SEC), has responded by refuting the agency’s allegations of trading unregistered securities. The cryptocurrency exchange argues that the case lacks precision and misinterprets fundamental legal concepts.
In its response filing, Kraken points out discrepancies in the SEC’s argument and highlights the agency’s failure to accurately identify the investment contracts traded on the exchange. Furthermore, Kraken disputes the SEC’s use of terms like “investment concept” and “ecosystem” instead of “investment contract” and “enterprise,” claiming that it reflects a misunderstanding of the case’s legal framework.
The SEC initially sued Kraken in November 2023, accusing the exchange of unlawfully making millions of dollars from transactions involving “crypto asset securities” and providing various financial services without proper registration. This lawsuit came after Kraken had already settled charges related to its former staking service.
However, Kraken has filed a motion to dismiss, arguing that the case sets a “dangerous precedent” for the SEC’s jurisdiction. In response, the SEC has submitted a 39-page opposition to Kraken’s motion, stating that the enforcement action is within the authority granted by Congress.
In its motion filed on May 9, Kraken contests the SEC’s claim that written contracts are required in investment agreements, emphasizing that contracts can be oral, expressed, or implied. The exchange also argues that the SEC’s attempts to refute unaddressed arguments show a misunderstanding of the main points of the case.
To support its stance, Kraken refers to past SEC cases involving initial coin offerings, highlighting that these cases focused on contractual rights and obligations, which aligns with Kraken’s view of investment contracts.
Kraken’s motion relies on the interpretation of the SEC’s jurisdiction using the Howey test, which defines a security based on specific criteria. These criteria include the investment of capital in a common enterprise with the expectation of profit, driven by the efforts of others.
While the U.S. Congress is currently deliberating on crypto regulation through various bills, eight state attorneys general have filed a joint amicus brief, arguing that the SEC exceeded its delegated authority in the lawsuit against Kraken.