Kraken Co-Founder Jesse Powell Says SEC Lawsuit An "Assault on America," Tells Crypto Firms To Exit ``US Warzone``

Kraken Co-Founder Jesse Powell Says SEC Lawsuit An “Assault on America,” Tells Crypto Firms To Exit “US Warzone“

Updated: 03 June 2024

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Kraken co-founder Jesse Powell has slammed a lawsuit filed against the crypto exchange by the US Securities and Exchange Commission (SEC), calling it an assault on America.

“USA’s top decel is back with another assault on America,” Powell said in an X post, and urged crypto companies to exit the US because of the regulator’s crackdown on the industry.

USA's top decel is back with another assault on America. The masochists haven't been happy with the beatings they've been taking in NY and are shopping for a different flavor of RegDom in CA. I thought we settled all their concerns for $30m in Feb. Now they're back for seconds? https://t.co/SkfPJyneUz

— Jesse Powell (@jespow) November 21, 2023

SEC Files Fresh Lawsuit Against Kraken

The SEC charged Kraken on Nov. 20 with operating an unregistered securities exchange and commingling customer fiat and crypto holdings with its own.

The SEC’s complaint says Kraken has generated millions of dollars in revenue since 2018 by facilitating crypto asset securities trading without proper US licensing. It adds that the exchange exposed investors to significant risks by failing to register its services.

The securities regulator further alleges that Kraken pays “operational expenses directly from accounts that hold customer cash.”

“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space,” said the SEC enforcement division director Gurbir S. Grewal. “And today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”

Kraken Pushes Back against SEC’s Complaint

Kraken hit back at the SEC’s lawsuit and intends to defend its position in court, according to a blog post.

Kraken’s statement says the SEC’s need for a special securities license is “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.”

The exchange also refutes the claims of mixing customer assets with its own. It said that the “commingling” outlined by the SEC is, in fact, the exchange spending fees it earns from customer transactions.

Kraken’s CEO, Dave Ripley called upon the SEC to set up a clear path for registration and Congress to bring clarity to the industry.

We strongly disagree with the SEC claims, stand firm in our view that we do not list securities, and plan to vigorously defend our position.

As we have seen before, the SEC argues that @krakenfx should “come in and register” with the agency, when there is no clear path to…

— Dave Ripley (@DavidLRipley) November 21, 2023

Kraken paid a $30 million settlement earlier this year in what it thought was an end to the issue, said Powell. It made that settlement after the SEC said its staking-as-a-service product was an unregistered security.

“I thought we settled all their concerns for $30m in Feb,” he said. “Now they’re back for seconds?”

Crypto Community Support For Kraken

Pro-crypto US senator Cynthia Lummis has come to Kraken’s defence, saying the SEC cannot continue ruling by enforcement.

The SEC cannot continue ruling by enforcement. My statement on the Kraken lawsuit below: pic.twitter.com/J3qhzU624N

— Senator Cynthia Lummis (@SenLummis) November 21, 2023

Senator Lummis believes the SEC’s actions cause unnecessary harm to consumers. As such, Congress needs to formulate clear guidelines differentiating between crypto asset securities and crypto asset commodities.

In July this year, Senator Lummis, alongside Senator Kirsten Gillibrand, reintroduced a crypto bill to create a comprehensive regulatory framework for crypto assets.

Crypto lawyer John Deaton called the SEC Chair, Gary Gensler, “despicable and dishonorable.” Deaton believes Kraken’s decision to settle with the regulator earlier this year was a mistake.

@GaryGensler is a despicable and dishonorable regulator. He knew that @krakenfx believed it was buying peace for the $30M. I know some people are critical of it’s choice to settle and pay the $30M. I wanted them to fight as well. But when you decide to fight, $30M takes you only… https://t.co/WeF4YTMfip

— John E Deaton (@JohnEDeaton1) November 21, 2023

Criminal defence lawyer Carlo D’Angelo said Kraken might still win against the SEC.

Similar arguments have been tried and failed in other circuits. The judge in the Kraken case will likely look closely at those decisions. Judges like consistent precedents—less chance of getting reversed on appeal. Odds don’t favor SEC imho. pic.twitter.com/9tIKAd1iRg

— Carlo⚖️.eth (@DeFiDefenseLaw) November 21, 2023