Kraken claps back at SEC lawsuit, claiming overreach

Crypto exchange Kraken is pushing back against the U.S. Securities and Exchange Commission (SEC), seeking to toss out a lawsuit that accused the platform of operating without proper registration.

Filed in a San Francisco federal court yesterday, Kraken’s dismissal motion challenges the SEC’s grip on speculative investments, marking the exchange’s stance against what it sees as regulatory overreach.

Kraken’s counter comes amid a broader industry backlash against the SEC, with giants like Binance and Coinbase also throwing their hats into the ring with similar dismissal petitions. These moves spotlight the crypto sector’s growing impatience with what they argue is the SEC’s attempt to stretch its regulatory tentacles too far.

The SEC’s lawsuit accuses Kraken of operating unregistered business and mishandling customer assets. However, Kraken’s defense focuses on the absence of fraud or consumer harm claims in the SEC’s accusations, framing the regulatory body’s actions as a “dangerous overstep.”

Kraken’s blog post accompanying the motion claims that the SEC’s logic could absurdly stretch to classify everyday items like sports memorabilia or luxury watches as securities. This stance echoes a broader industry sentiment that the SEC’s current attitude could blur lines to an unreasonable extent, bringing in non-traditional investments under its purview.

The heart of Kraken’s argument lies in the definition of investment contracts and the nature of the cryptocurrencies traded on its platform. The exchange contends that its customers do not enter into a common enterprise with issuers, nor do they expect profits from such issuers’ efforts—points that, in its view, should exempt the traded cryptocurrencies from being labeled as investment contracts under U.S. securities laws.

Kraken also highlights a recent Supreme Court ruling underscoring Congress’s role in legislation over regulatory bodies. This legal principle has become a popular shield for crypto entities facing SEC lawsuits, including Binance, Coinbase, and Terraform Labs.

The backdrop to this legal battle is a heated debate in Congress over the proper regulatory framework for cryptocurrencies, with proposals on the table aiming to either curb the SEC’s authority or clarify the Commodity Futures Trading Commission’s role in overseeing crypto exchanges.