Kraken Denies SEC Claims, Argues Digital Assets Shouldn’t Be Classified as Securities

Kraken, a prominent cryptocurrency exchange, has taken a stand against the United States Securities and Exchange Commission (SEC) over allegations that it has violated federal securities laws. The SEC has accused Kraken of offering multiple digital assets that should be classified as unregistered securities.

Legal filing of Kraken’s answer to the SEC’s complaint. Source: CourtListener

Read more: Kraken Custody Expands Reach to the UK and Australia

Kraken Denies Breach of Laws: Asserts Digital Assets Do Not Qualify as Securities

In its response to the SEC's allegations, Kraken firmly denies that it has breached any laws. The exchange argues that the digital assets in question, such as Cardano (ADA), Algorand (ALGO), and Cosmos (ATOM), do not meet the legal definition of securities. Kraken's defence is grounded in the assertion that these assets are not investment contracts.

The exchange cites the Supreme Court case, SEC v. W.J. Howey Co., which established the criteria for determining what constitutes an investment contract. Kraken argues that the SEC has failed to prove that these digital assets satisfy the Howey test, a framework used to define securities. Therefore, Kraken believes these assets fall outside the SEC's regulatory scope.

Kraken Criticises SEC's Regulatory Approach: Claims of Overreach and Lack of Clarity

Kraken's filing also criticises the SEC's approach to regulating the cryptocurrency industry. The exchange contends that the SEC has overstepped its authority by attempting to regulate its digital asset trading platform. Kraken argues that the SEC’s interpretation of securities laws as they apply to digital assets lacks clarity and does not provide fair notice of what constitutes legal conduct.

Kraken’s ninth defense cites a lack of due process and fair notice in its legal filing. Source: CourtListener

Kraken maintains that the SEC’s claims suggest a misunderstanding of the digital asset market and an overreach of regulatory power. The exchange highlights the lack of clear guidelines regarding its obligations under the law, which it argues makes it difficult to understand what actions might be considered violations.

Read more: Kraken Denies Bitcoin Payout to Mt Gox Creditors Despite Verification

Industry Reactions

The SEC's actions have sparked criticism from other figures in the cryptocurrency industry. Stuart Alderoty, Chief Legal Officer at Ripple, has mocked the SEC's concept of "crypto asset securities," describing it as inconsistent and convoluted. Similarly, Paul Grewal, Chief Legal Officer at Coinbase, has condemned the SEC for its contradictory stance on XRP, noting that the regulatory body previously labelled XRP itself as a security in its 2020 complaint against Ripple.

Source:Stuart Alderoty