Kraken Files To Dismiss SEC Lawsuit, Citing ''Dangerous Precedent'' For Regulatory Overreach

Kraken Files To Dismiss SEC Lawsuit, Citing ”Dangerous Precedent” For Regulatory Overreach

Updated: 23 February 2024

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Cryptocurrency exchange Kraken filed to dismiss a November lawsuit from the US Securities and Exchange Commission (SEC), arguing that it would set a ”dangerous precedent for agency overreach.”

The SEC is suing Kraken for allegedly operating as an unlicensed securities exchange, broker, dealer and clearing agency, and for unlawfully selling ”crypto asset securities” that it says are investment contracts. Kraken was also accused of commingling $33 billion in customer assets with business funds due to poor internal controls.

In a Feb. 22 blog post coinciding with the filing, Kraken took issue with the SEC’s argument that there can be an investment contract with no contract, no post-sale obligation and no interaction at all between issuer and purchaser

Today, the SEC filed a complaint alleging that Kraken operates as an unregistered national securities exchange, broker, and clearing house. We disagree with their claims and plan to vigorously defend our position. https://t.co/a0C4wzBo3f

— Kraken Exchange (@krakenfx) November 21, 2023

Kraken Says SEC Is Attempting A ”Jurisdictional Grab”

Such a theory has no limiting principle and would turn assets or commodities like sports memorabilia, trading cards, expensive watches, or even diamonds, into securities, it said.

“It would grant to the SEC boundless authority over commerce and potentially open up the floodgates to private securities law claims,” it said. “Allowing this case to continue sets a dangerous precedent for agency overreach.”

The SEC is attempting a ”jurisdictional grab” over the trillion-dollar crypto industry, Kraken said, adding the lawsuit should also be dismissed under the so-called major questions doctrine, which says that Congress does not delegate to executive agencies such as the SEC the right to rule on issues of major political or economic significance.

“This doctrine is designed to prevent agencies from “discovering” broad regulatory power without a clear delegation from Congress – which is exactly what the SEC is doing here,” it said. “The SEC should not be permitted to expand its own jurisdiction; that is Congress’ decision.”

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