Eight US States Challenge SEC’s Authority in Kraken Cryptocurrency Lawsuit
Summary:
In a joint amicus brief, attorneys general from eight U.S. states accused the SEC of overstepping its jurisdiction in its lawsuit against cryptocurrency exchange Kraken. They argue the SEC has expanded the definition of an "investment contract" and that such regulation of cryptocurrencies could risk breaching state consumer protection laws. This follows Kraken's previous motion to dismiss the lawsuit, citing regulator overreach. The brief was filed by officials from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, along with industry lobbyists.
A collective amicus brief has been submitted by attorneys general from eight states in the United States, alleging the Securities and Exchange Commission (SEC) has overstepped its jurisdiction in its ongoing lawsuit against cryptocurrency exchange, Kraken. The documentation was officially submitted on February 29 by representatives from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas. The group also included various industry lobbyists. As outlined in the brief, state officials aren't taking a side but rather dispute the regulation of cryptocurrencies by the SEC without the establishment of an investment contract, asserting that the SEC lacks congressional authority for this activity.
Their argument restates that the SEC has broadened the definition of an "investment contract". The attorneys general further stated that it should be the states' role to prevent possible encroachments on state laws, including those protecting consumers, which could be jeopardized by the SEC's regulation of cryptocurrencies as securities. They asserted that the court should not treat cryptocurrencies as securities without an investment contract. They furthered their argument by stating that the unilateral power exercised by the SEC in this case endangers state consumers by subverting state laws that are better suited to the unique risks of non-securities products. They declared that the SEC's enforcement action goes beyond its powers and mentioned that some state laws offer more consumer protection than federal securities laws.
This comes on the heels of a motion by Kraken in late February pushing for the dismissal of the lawsuit on the grounds of regulator overreach presenting a "dangerous precedent". Kraken contends that the SEC lacks a limiting principle and this lawsuit, if ruled in favor of the SEC, would grant the regulator too much power.
On the same day, the cryptocurrency exchange published a blog post arguing that the SEC's claim that Kraken operates an unlicensed securities exchange, broker, dealer, and clearing agency is mistaken, labeling crypto tokens as "investment contracts" without identifying any real contracts between clients and the exchange. Back in November, the SEC began its lawsuit against Kraken for allegedly operating without registration, mingling client funds, and not averting conflicts of interest. Similar grievances have been lodged by the SEC against other crypto entities like Coinbase, Binance, and the U.S. division of Bittrex, with the cases against the first two still pending.
Published At
3/1/2024 12:21:28 PM
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