The legal battle between San Fransisco-based cryptocurrency exchange Kraken and the United States Securities and Exchange Commission (SEC) has taken an unexpected turn as the crypto platform garners support from eight states in the US, putting it one step ahead of the regulatory watchdog.
Kraken Gains Support From 8 US States
Well-known crypto advocate and Chief Legal Officer (CLO) of Coinbase, Paul Grewal, shared the latest update regarding the case of Kraken and the SEC with the crypto community a few hours ago on the social media platform X (formerly Twitter).
Being on fair ground, Grewal highlighted that the state of Montana has recently “filed a remarkable amicus brief against the Commission’s case against Kraken.” Additionally, seven other US states are also in support of the amicus filing against the regulatory agency.
Specifically, the states of Montana, Iowa, Arkansas, Nebraska, Mississippi, South Dakota, Texas, and Ohio are backing Kraken. These state attorney generals contend that the SEC’s legal action violates state rights and consumer safety rules by trying to regulate crypto assets as securities.
Grewal claims that these states believe that the “ecosystem” theory laid out by the Commission is illegal and dangerous to the US residents while giving out several reasons why the states are against the notion.
According to Grewal, some states have strict laws that protect their consumers more than federal securities. Meanwhile, with the SEC‘s unaccountable power to override state laws that are more suited to address the unique dangers of non-securities products, customers are put at risk.
It is noteworthy that states have a great interest in preventing the SEC’s attempt to regulate cryptocurrency assets as securities. This is because it might potentially bypass consumers’ safety and other state laws.
Investment Contracts Are Intended For Unconventional Instruments
Paul Grewal also noted that the Securities Act and the Exchange Act’s portrayal of “investment contracts” is not intended to function as universal consumer protection laws that apply to all asset acquisitions.
In addition, the Coinbase CLO further drew attention to the Wals v. Fox Hills Dev.Corp. (7th Cir. 1994), 24 F.3d 1016, 1018-19 to back up his claims. According to the statute’s wording, the phrase “investment contracts” is only meant to refer to non-traditional instruments with the fundamental characteristics of debt or equity securities.
Presently, a lot of states have put laws and regulations into place that categorize cryptocurrency assets as Money Transmitters. It is widely known that money transmitters, in most cases, have to submit to inspections by state regulators.
They are also compelled to register, provide proof of security, and present a minimum net worth. Grewal has stressed that these frameworks, diligently constructed by the states, run the “risk of being preemptied.”
So far, the regulatory watchdog has filed multiple cases against crypto platforms and exchanges over the years. However, the conclusion of the Kraken and the SEC’s case may impact hugely how crypto regulations develop everywhere in the world.