Kraken has rejected the US Securities and Exchange Commission (SEC) allegations of trading unregistered securities.
The exchange filed a reply to the SEC’s April letter, highlighting flaws in the regulator’s legal interpretations. Kraken urges the court to dismiss SEC claims, saying it lacks precision.
The latest move has intensified the legal battle between Kraken and the US securities regulator.
Kraken Rebuffs The SEC’s Claims Against the Exchange
One of the top US-base crypto exchanges, Kraken, has filed a motion regarding the SEC’s lawsuit against the firm. The filing came as a response to the regulator’s April letter.
In its May 9 filing, Kraken refutes the SEC’s allegations of trading unregistered securities in the US. The crypto exchange challenged the SEC’s case, pointing out its lack of precision and misinterpreting major legal concepts.
Kraken identified inconsistencies in the SEC’s argument. It noted that the agency failed to ascertain the correct investment contracts on its trading platform.
Also, Kraken contested the regulator’s use of terminologies that reflect a wrong interpretation of the legal framework in the case. Some of such terms include ‘investment concept’ and ‘ecosystem’ rather than’ investment contract’ and ‘enterprise.’
The exchange maintained that such discrepancies in wording weaken the SEC’s case. Moreover, it shows a lack of specificity in identifying the regulator’s claims against the exchange.
Additionally, Kraken contended the SEC’s complaints concerning the need for written contracts in investment contracts. The exchange stressed that such contracts can exist in different forms, including implied, expressed, and oral forms.
Also, Kraken pointed out that the agency’s motives for refuting arguments that the exchange didn’t present indicate a misunderstanding of the core arguments in the case.
Further, the exchange highlighted similar SEC cases on initial coin offerings as supporting proof. It noted that those cases revolved around contractual rights and obligations.
Meanwhile, in an April filing, the agency justified its language use. The SEC stated:
“The words themselves do not delimit the security type because the reach of the act does not stop with the obvious and commonplace.”
The Trend in SEC’s Lawsuits Against Crypto Firms
The SEC has embarked on a hawkish stance on crypto, reflected in its numerous crackdowns on crypto firms. The regulator has filed several lawsuits against crypto firms, including Ripple, Kraken, Coinbase, Binance, etc.
The SEC sued Kraken in November 2023 for operating as an unregistered broker, exchange, clearing house, and dealer. The SEC alleged that Kraken’s unregistered operations deprived investors of the necessary protections and accused the exchange of making unlawful gains at the expense of investors.
Recall that Kraken paid the SEC a settlement fine of $30 million in February 2023 for operating as an unregistered securities broker. Also, the exchange shut down its staking program in the US according to the regulator’s demand.
The SEC’s case with the blockchain payment company Ripple is the longest-existing crypto lawsuit. The regulator is also at odds with Coinbase over an alleged US securities law violation.
Additionally, the regulator has set its eyes on the Ethereum Foundation, intending to classify Ethereum as security. It sent subpoenas to some Ethereum-related entities, demanding documents about deals with the Ethereum Foundation.
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