Kraken has strongly denied allegations from the United States Securities and Exchange Commission that it has violated federal securities laws.
The SEC claims that several digital assets offered by Kraken qualify as unregistered securities.
Kraken’s defense against SEC allegations
In its legal response, Kraken argues that the digital assets in question don’t fit the legal definition of securities under U.S. law.
The exchange specifically maintains that assets such as Cardano, Algorand, Cosmos, and others traded on its platform aren’t investment contracts.
“Kraken did not violate Sections 5, 15(a), and 17A of the Securities Exchange Act of 1934 because ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL are not securities or investment contracts.”
The exchange references the SEC v. W.J. Howey Co. ruling, a key Supreme Court case that helps define what constitutes an investment contract.
Kraken argues that the SEC hasn’t proven that the digital assets meet the criteria set out in the Howey test, which means they shouldn’t fall under the SEC’s jurisdiction.
No regulatory clarity, no authority?
Kraken also criticizes the SEC’s approach to regulating the cryptocurrency sector.
The exchange claims that the SEC lacks the authority to regulate its digital asset trading platform because the assets aren’t securities or investment contracts.
Kraken argues that the SEC already overstepped its boundaries and that its interpretation of securities laws regarding digital assets is unclear.
“Due to the lack of clarity and fair notice regarding Kraken’s obligations under the law, Kraken lacked fair notice that its conduct was prohibited.”
Astonishing incompetence?
The SEC faced criticism from other industry leaders as well. Stuart Alderoty, chief legal officer at Ripple, and Paul Grewal, chief legal officer at Coinbase, have both condemned the SEC for its inconsistent stance on digital asset regulation.
Alderoty ridiculed the SEC’s use of the term “crypto asset securities,” calling it a convoluted term filled with contradictions.
Grewal pointed out that the SEC had previously claimed that XRP itself is a security in its 2020 complaint against Ripple and others.
