Eight state attorneys general in the United States have jointly filed an amicus brief, arguing that the Securities and Exchange Commission (SEC) has exceeded its delegated power in the lawsuit against cryptocurrency exchange Kraken. The brief was submitted on February 29 by officials from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, along with industry lobbyists.
The filing states that the state officials are not taking sides, but rather opposing the SEC’s regulation of crypto assets in the absence of an investment contract, as Congress has not granted the SEC this authority. The attorneys general argue that the SEC is broadening the definition of an “investment contract” and that states have the responsibility to prevent potential breaches of state laws, including consumer protection laws, that could arise from the SEC’s attempt to regulate crypto assets as securities. They state, “The SEC’s enforcement action goes beyond its delegated powers. Some state laws offer greater consumer protection than federal securities laws.”
This development follows Kraken’s motion filed on February 22, in which the exchange requested that the lawsuit against it be dismissed entirely, citing similar concerns about the SEC’s overreach and the establishment of a dangerous precedent. Kraken contends that the SEC has no defined limitations and that granting the agency favor in this lawsuit would give it excessive authority. In a blog post on the same day, Kraken argued against the SEC’s claim that it operates as an unlicensed securities exchange, broker, dealer, and clearing agency, asserting that the SEC has failed to provide evidence of any actual contracts between customers and the exchange.
In November, the SEC filed its lawsuit against Kraken, accusing the exchange of operating without registration, commingling client funds, and failing to prevent conflicts of interest. The SEC has also filed similar complaints against other crypto-related firms, including Coinbase, Binance, and the US branch of Bittrex, with ongoing cases against the first two.