Kraken, a centralized cryptocurrency exchange, has responded to the United States Securities and Exchange Commission (SEC) ’s claim that it violated federal securities laws.
The SEC alleged that multiple digital assets the crypto exchange offers qualify as unregistered securities.
In the legal filing response, Kraken firmly denies the allegations, maintaining that the assets in question do not meet the legal definition of securities under US law.
Legal filing of Kraken’s answer to the SEC’s complaint. Source: CourtListener
Related: eToro US to cease nearly all crypto trading following SEC settlement
Kraken pushback on SEC allegations
The exchange’s defense rests strongly on the assertion that digital assets, including Cardano (ADA), Algorand (ALGO), Cosmos (ATOM), and others traded on Kraken, are not investment contracts.
“Kraken did not violate Sections 5, 15(a) and 17A of the Securities Exchange Act of 1934 because ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL[…] are not securities or investment contracts.”
According to the filing, Kraken cites the SEC v. W.J. Howey Co. ruling, a landmark Supreme Court case that provides the framework for determining what constitutes an investment contract.
The exchange argues that the SEC failed to demonstrate that the digital assets in question meet the criteria outlined in the Howey test and, therefore, do not fall under the SEC’s authority.
Related: Bill seeks to create SEC-CFTC joint committee on digital assets
Overreach and lack of clarity claims
Kraken also countered the SEC’s claims in the filing, criticizing the regulator’s approach to regulating the crypto industry.
“The SEC has no authority to regulate Kraken’s digital asset trading platform[…] because the Digital Assets are not securities or investment contracts.”
Kraken’s ninth defense cites a lack of due process and fair notice in its legal filing. Source: CourtListener
The exchange claims that the agency has overstepped its authority and argues that the SEC’s interpretation of securities laws on digital assets lacks clarity.
“Due to the lack of clarity and fair notice regarding Kraken’s obligations under the law[…] Kraken lacked fair notice that its conduct was prohibited.”
Related: US House Republicans probe SEC’s Gensler on political hiring claims
SEC under fire
Stuart Alderoty and Paul Grewal, chief legal officers at Ripple and Coinbase, respectively, have slammed the SEC for the regulator’s apparent contradictions.
Alderoty mocked the regulator for its position on “crypto asset securities,” describing it as a term the SEC essentially invented in a “twisted pretzel of contradictions.”
Source: Stuart Alderoty
Grewal criticized the SEC for its claims against XRP, stating that the regulatory body had “literally claimed XRP itself is a security” in its 2020 complaint against “Ripple et al.”
Magazine: Proposed change could save Ethereum from L2 ‘roadmap to hell’