Centralized cryptocurrency trading platform Kraken has again refuted the US Securities and Exchange Commission’s (SEC) allegations that the exchange sold digital assets that qualify as unregistered securities.
Kraken vs. SEC, A Battle Of Legal Definitions
In its response, the San Francisco-headquartered exchange insisted it had not violated federal securities laws. Specifically, the exchange mentions that the digital assets sold on its platform do not meet the legal definition of securities or investment contracts.
Specifically, the exchange states that digital assets such as Algorand (ALGO), Cosmos (ATOM), Polygon (POL), Filecoin (FIL), Solana (SOL), and Cardano (ADA) – among others available on the platform – are not investment contracts. Kraken is now set to pursue a jury trial against the SEC.
The exchange writes in its official filing:
Kraken has tried to work with the SEC to make registration feasible. But the industry’s efforts have been stonewalled at every step, as the SEC has instead chosen to pursue a strategy of fighting with its sister regulators for enforcement authority its Chair admitted it did not have.
For the uninitiated, in November 2023 the SEC filed a lawsuit against Kraken, accusing it of operating an unregistered crypto exchange for digital assets. Unsurprisingly, Kraken CEO Jesse Powell criticized the SEC’s lawsuit, calling it a “recurring attempt” at regulation.
While the SEC has gained infamy for its perceived continual policing of crypto businesses, Kraken has found support from US Senator Cynthia Lummis, who argued that the SEC “cannot continue ruling by enforcement” without clear crypto laws.
To bolster its position, in its filing, Kraken has cited the SEC v. W.J. Howey Co. ruling, which led to the inception of the famous Howey Test that helps determine whether a transaction could qualify as a security or investment contract. The crypto exchange has emphasized the SEC’s inability to prove that the cryptocurrencies in question meet the criteria for securities.
Kraken’s decision to pursue a jury trial against the financial regulator follows a federal judge’s ruling that paved the way for the SEC’s lawsuit against the exchange to proceed to trial. It also comes at a time when the SEC has acknowledged that using the term “crypto asset security” isn’t entirely free of ambiguous interpretations.
US SEC’s Crackdown On Crypto Entities Continues
The US SEC’s alleged overreach into the crypto industry has forced several states to come together in defense of digital assets businesses, as these states have strict laws that aim to safeguard their consumers more than federal securities.
In August 2024, leading non-fungible-token (NFT) platform OpenSea came under the SEC radar when it received a Wells notice from the regulator, hinting that the NFTs traded on the platform may fall under the definition of securities. Bitcoin trades at $58,461 at press time, up by 1.5% in the 24-hour timeframe.
