Kraken file to throw out SEC suit—”dangerous precedent” for overreach

Kraken, a cryptocurrency exchange, claims that the SEC’s lawsuit against it “has no limiting principle” and gives the agency too much power.

On the grounds that it establishes a “dangerous precedent” for the authority of the SEC, cryptocurrency exchange Kraken has moved to vacate a November complaint that the SEC had filed.

Kraken moved the federal court in San Francisco to dismiss the case on February 22. Adding to the blog article, Kraken made the following statement:

“According to the SEC, an investment contract need not include a contract, post-sale duties, or issuer-purchaser contact whatsoever.”

According to the argument, the theory in question “has no limiting principle” and would give the SEC “boundless control over commerce and possibly open up the floodgates to private securities law claims.”

Additionally, the business said that “it would turn a wide variety of everyday items or commodities, such as sports memorabilia, trading cards, fancy watches, or even diamonds,” into collateral for securities.

In a lawsuit filed last year, the SEC said that Kraken had generated millions of dollars from “crypto asset securities” transactions and offered “exchange, broker, dealer, and clearing agency” services without necessary registration.

Additionally, the government said that Kraken’s lack of adequate internal controls resulted to the misappropriation of $33 billion in client assets.

Since there was no agreement between Kraken users and the cryptocurrency issuers, Kraken said in its petition that the SEC did not prove that the cryptocurrencies traded on the exchange constituted “investment contracts” under US securities laws.

A business did not get funding from Kraken consumers. Customers of Kraken did not engage in any joint ventures with issuers. Additionally, the argument said that Kraken consumers had no reasonable expectation of financial gain from the endeavors of issuers.

Additionally, it said that the SEC’s interpretation of a security may lead it to “securitize” even the sale of seemingly innocuous assets, such as comic books and baseball cards, and that securities rules “have never granted the SEC […] such extensive power.”

A judgment by the United States Supreme Court in 2022, known as the significant questions doctrine, states that Congress’s goal is to create laws rather than delegate power to regulators. Kraken argued that this fact alone should be enough to dismiss the lawsuit.

Binance, Coinbase, and Terraform Labs are among the other cryptocurrency companies that have sought to have SEC litigation dismissed by referring to the theory.

Legislation to regulate the cryptocurrency business is in the works in the United States Congress, and lawmakers are still arguing about the best way to do it.

During a Congressional hearing on cryptocurrency regulation in May, Kraken said that the existing rules aren’t enough and that a framework should be put in place to restrict the jurisdiction of the SEC and extend the authority of the Commodity Futures Trading Commission to encompass exchanges.

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