Kraken, in its legal battle against the United States Securities and Exchange Commission (SEC), has submitted a response denying the agency’s accusations of trading unregistered securities. The company argues that the case lacks precision and misinterprets crucial legal concepts.
In its filing, Kraken highlights discrepancies in the SEC’s argument, specifically noting the agency’s failure to accurately identify the investment contracts traded on the exchange. Furthermore, Kraken asserts that the SEC’s use of terms like “investment concept” and “ecosystem” instead of “investment contract” and “enterprise” indicates a misunderstanding of the case’s legal framework.
The SEC initially sued Kraken in November 2023, alleging that the company unlawfully earned millions of dollars from transactions involving “crypto asset securities” and provided various financial services without registering with the agency as required by law. This lawsuit came several months after Kraken settled charges regarding its previous staking service.
However, Kraken has filed a motion to dismiss, arguing that the case sets a dangerous precedent for the SEC’s jurisdiction. In response, the SEC has submitted a 39-page opposition to Kraken’s motion, stating that the enforcement action falls within the authority granted to the SEC by Congress.
In its motion, submitted on May 9, Kraken disputes the SEC’s claim that written contracts are necessary for investment agreements, emphasizing that contracts can be oral, expressed, or implied. The company argues that the SEC’s attempts to refute unaddressed arguments indicate a misunderstanding of the central points of the case.
To support its stance, Kraken references previous SEC cases involving initial coin offerings, highlighting that these cases revolved around contractual rights and obligations, aligning with Kraken’s interpretation of investment contracts.
Kraken’s motion centers around interpreting the SEC’s jurisdiction using the Howey test, which defines a security based on specific criteria, such as the investment of capital in a common enterprise with the expectation of profit driven by the efforts of others.
Meanwhile, the U.S. Congress is currently deliberating on cryptocurrency regulations through several ongoing bills. In addition, eight state attorneys general have jointly filed an amicus brief, arguing that the SEC exceeded its delegated authority in the lawsuit against Kraken.
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