Kraken dismisses SEC lawsuit, alleging regulatory overreach
Kraken seeks to dismiss the SEC’s lawsuit, citing regulatory overreach
Exchange’s CEO claimed the SEC’s lawsuit was retaliation for Kraken’s criticism of crypto-regulations
Kraken has initiated legal action to dismiss a lawsuit brought by the U.S. Securities and Exchange Commission (SEC). Kraken filed this motion on 22 February as a response to the SEC suing them for various allegations, stating that it continues to set a “dangerous precedent for agency overreach.”
SEC’s allegations against Kraken
The SEC filed a lawsuit against Kraken on 20 November 2023 in a San Francisco federal court. It accused Kraken of operating an “unregistered securities exchange, broker, dealer, and clearing agency,” a charge stemming from activities dating back to at least September 2018.
According to the SEC, Kraken’s failure to register its services has deprived investors of crucial protections, such as SEC inspections, record keeping requirements, and safeguards against conflicts of interest. Moreover, the SEC also accused Kraken of mingling $33 million worth of customer assets with funds for businesses.
These allegations highlight the SEC’s broader strategy under Chair Gary Gensler to regulate the crypto-industry. Moreover, this treats digital assets as investment contracts subject to federal securities laws.
This approach has sparked considerable debate within the crypto-community and among legal observers about the appropriate regulatory framework for digital assets.
Kraken’s CEO opens up
David Ripley, CEO of Kraken, took to X (formerly Twitter) today to divulge the real story behind the entire lawsuit. In doing so, he indicated that the lawsuit might have been a retaliation as Kraken had testified against the SEC.
Sharing the incident in detail, he said,
“On May 10, before both the House Financial Services Committee and the House Agriculture Committee, Kraken testified about the SEC’s overreach in crypto and its flawed regulation-by-enforcement approach to policymaking. The next day, the SEC called Kraken to say it was going to sue.”
Ripley condemned this incident, claiming that U.S crypto exchanges have been constantly operating under regulatory threats from the SEC, which is unfair. In his opinion, the global crypto jurisdiction is rapidly advancing, with newer and constructive regulations coming into play. In such a scenario, the SEC might be overstepping its boundaries and hindering the growth of U.S crypto-exchanges.
He also commented,
“Crypto innovators in the United States should not have to fear retaliation for their political speech. They should be free to earnestly advocate for better laws and more efficient markets.”
Congress or SEC: Who should hold the regulatory power?
Kraken has argued for the dismissal of the SEC’s lawsuit, invoking the major questions doctrine — A principle underscored by a 2022 Supreme Court decision that emphasizes that legislative responsibilities rest with Congress, not regulatory agencies. Additionally, the same appeal was made by exchanges like Binance and Coinbase during their SEC lawsuit dismissal attempts.
A spokesperson from Kraken spoke about this with Fox Business, stating,
“Today, we asked the court to hand this power back to Congress, where it belongs.”
Meanwhile, the U.S. Congress is actively engaging in discussions about the appropriate regulatory framework for cryptocurrencies, with several proposed bills aimed at overseeing the industry currently in the pipeline.
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