Kraken, a well-known cryptocurrency exchange, has officially responded to allegations made by the United States Securities and Exchange Commission (SEC) that it violated federal securities laws.
The SEC accused Kraken of offering several digital assets that qualify as unregistered securities, a claim Kraken firmly denies.
Kraken’s Legal Defense
In its legal filing, Kraken stated that the digital assets in question, such as Cardano (ADA), Algorand (ALGO), and Cosmos (ATOM), do not meet the legal definition of securities under US law. The exchange emphasised that these assets are not investment contracts, which are typically regulated by the SEC.
“Kraken did not violate Sections 5, 15(a), and 17A of the Securities Exchange Act of 1934,” the filing reads, listing several digital assets, including ADA, ALGO, ATOM, and others. Kraken argued that these assets are not securities or investment contracts.
Citing the Howey Test
Kraken’s defence relies on the landmark Supreme Court case SEC v. W.J. Howey Co., which set the standard for determining what constitutes an investment contract. Kraken argued that the SEC has failed to prove that the digital assets offered by the exchange meet the criteria established by the Howey test, thus claiming that the SEC has no authority over these assets.
“The SEC has no authority to regulate Kraken’s digital asset trading platform,” Kraken stated, reaffirming its position that the digital assets are not under the SEC’s jurisdiction.
Kraken Criticises SEC’s Approach
Kraken also criticised the SEC’s overall approach to regulating the crypto industry, accusing the agency of overstepping its authority. The exchange’s ninth legal defence highlighted a lack of due process and fair notice, claiming the SEC’s 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,” the filing stated.
Ripple and Coinbase Legal Officers Weigh In
Prominent figures in the crypto legal space, including Stuart Alderoty of Ripple and Paul Grewal of Coinbase, have also criticised the SEC. Alderoty mocked the SEC for coining the term “crypto asset securities,” calling it a “twisted pretzel of contradictions.” Meanwhile, Grewal slammed the SEC’s 2020 claims against Ripple, where the regulator allegedly classified XRP as a security.
Both legal officers echoed Kraken’s concerns, questioning the SEC’s regulatory approach to the crypto market.
