Kraken Seeks Court’s Rejection of SEC Lawsuit

Kraken is making a legal push to have a lawsuit by the SEC dismissed, citing concerns over regulatory overreach that could set a troubling precedent.

The prominent crypto exchange, Kraken, is challenging a lawsuit by the US Securities and Exchange Commission (SEC), arguing that the lawsuit exceeds the SEC’s regulatory scope.

The SEC’s legal action in November 2023 accused Kraken of improperly mixing customer funds and offering securities without the proper registration on its trading platform.

Kraken’s Legal Counter On February 22, 2024, Kraken lodged a motion in the U.S. District Court Northern District of California seeking dismissal of the SEC’s charges.

Kraken highlighted that the SEC’s decision to pursue legal action followed closely after Kraken criticized the SEC’s enforcement-focused regulatory strategy in congressional testimony in May 2023.

Kraken contended during its testimony that the SEC’s ongoing legal battles with the cryptocurrency sector failed to safeguard consumers and urged Congress to fill the regulatory void.

In its defense against the lawsuit, Kraken maintains that the SEC’s allegations lack claims of fraud or consumer detriment, focusing instead on accusations of Kraken operating without registration as a securities exchange, broker-dealer, and clearing agency contrary to the Exchange Act.

The SEC identified various cryptocurrencies on Kraken’s platform, including SOL, OMG, MANA, ALGO, and ATOM, as securities in its November 2023 lawsuit.

Kraken responded in a blog post, arguing that the cryptocurrencies mentioned by the SEC do not meet the criteria of investment contracts legally and thus should not be classified as securities, failing the Howey test.

Ongoing Dispute With the SEC Beyond seeking to have the SEC’s lawsuit dismissed, Kraken asserts that the SEC is wielding its regulatory power too broadly, lacking explicit congressional authorization. The exchange argues this could lead to potential regulatory abuses.

Kraken criticized the SEC for adopting what it sees as flawed legal arguments and pledged to continue advocating for the interests of its clients and the broader innovation community. Kraken’s request aims to shift legislative responsibilities back to Congress.

Previously, in February 2023, Kraken faced SEC allegations regarding an unregistered crypto-staking service offering, resulting in a $30 million fine and the cessation of the service.

Similar to Kraken, other leading cryptocurrency platforms like Binance and Coinbase have moved to dismiss SEC lawsuits against them, marking a significant moment of contention between the crypto industry and regulatory authorities.

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