Kraken has responded to the lawsuit filed by the SEC, disputing the agency’s allegations of trading unregistered securities. The cryptocurrency exchange argues that the case lacks precision and misconstrues key legal concepts.
In its response, Kraken highlights discrepancies in the SEC’s argument, pointing out the agency’s failure to accurately identify the investment contracts traded on the exchange. Moreover, Kraken asserts that the SEC’s use of terms like “investment concept” and “ecosystem” instead of “investment contract” and “enterprise” demonstrates a misunderstanding of the legal framework of the case.
The SEC initially sued Kraken in November 2023, accusing the exchange of unlawfully generating millions of dollars from transactions involving “crypto asset securities.” The agency also alleged that Kraken provided services as an “exchange, broker, dealer, and clearing agency” without registering with the SEC as required by law. This lawsuit came after Kraken had settled charges related to its former staking service.
However, Kraken filed a motion to dismiss, arguing that the case sets a dangerous precedent for the jurisdiction of the SEC. In response, the SEC submitted a 39-page opposition to Kraken’s motion, stating that the enforcement action falls within the authority granted to the agency by Congress.
In its motion filed on May 9, Kraken challenges the SEC’s claim that written contracts are necessary for investment agreements. The exchange emphasizes that contracts can be oral, expressed, or implied. Furthermore, Kraken asserts that the SEC’s attempt to dismiss unaddressed arguments indicates a misunderstanding of the key points of the case.
To support its position, Kraken refers to previous SEC cases involving initial coin offerings, highlighting that these cases revolved around contractual rights and obligations, which aligns with Kraken’s interpretation of investment contracts.
Kraken’s motion relies on interpreting the SEC’s jurisdiction using the Howey test, which defines a security based on specific criteria, including the investment of capital in a common enterprise with the expectation of profit driven by the efforts of others.
Meanwhile, the U.S. Congress is currently deliberating on cryptocurrency regulation, with several bills under consideration. Additionally, eight state attorneys general have filed a joint amicus brief arguing that the SEC exceeded its delegated authority in the lawsuit against Kraken.
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