Kraken submits motion to dismiss SEC lawsuit — Raises concerns about overreach setting a hazardous precedent

Kraken, a cryptocurrency exchange, has submitted a request to dismiss a lawsuit filed against it by the United States Securities and Exchange Commission (SEC) in November. Kraken argues that the lawsuit sets a dangerous precedent for the agency’s jurisdiction. The dismissal motion was filed with a federal court in San Francisco on February 22, accompanied by a blog post from Kraken. The company claims that the theory behind the lawsuit has no limiting principle and would give the SEC boundless authority over commerce, potentially leading to an influx of private securities law claims. Kraken further contends that the SEC’s definition of a security could classify ordinary assets such as sports memorabilia, trading cards, expensive watches, and diamonds as securities. The SEC sued Kraken last year, accusing the exchange of engaging in unlawful transactions involving “crypto asset securities” and providing services without proper registration. Kraken argues that the SEC failed to demonstrate that the cryptocurrencies traded on its platform were investment contracts under US securities laws. The company also asserts that the SEC’s interpretation of securities laws exceeds its authority. Kraken invokes the major questions doctrine, a Supreme Court ruling from 2022, in support of its argument for dismissal. This doctrine states that Congress intends to pass laws instead of delegating authority to regulators. Other crypto firms, including Binance, Coinbase, and Terraform Labs, have also cited this doctrine in their attempts to dismiss SEC lawsuits. The US Congress is currently discussing the regulation of cryptocurrencies, and multiple bills are being developed to govern the industry. Kraken previously testified before a Congressional hearing focused on crypto regulation, advocating for a framework that limits the SEC’s authority and expands the Commodity Futures Trading Commission’s jurisdiction over exchanges. Kraken claims that the SEC’s decision to sue them came immediately after their testimony. The outcome of this legal battle could have significant implications for the regulation of cryptocurrencies and the extent of the SEC’s authority in the industry.