Kraken Fights Back Against SEC's Claims of Unregistered Securities Trading
Summary:
Kraken, a cryptocurrency exchange, has lodged a legal defense against the SEC's allegations of dealing in unregistered securities. The defense argues that the case misinterprets crucial legal principles. Highlighting inconsistencies in the SEC's argument and asserting that contracts in investment agreements can also be verbal and not just written. Kraken's defense hinges on the Howey test's interpretation of the SEC's authority. The case coincides with ongoing bills on crypto regulation in the US Congress.
In a legal rebuff to a lawsuit by the SEC, Kraken has submitted a reply denying charges of dealing in unregistered securities. The defence claims the case lacks accuracy and misreads fundamental legal principles. In its rebuttal filing, Kraken points out inconsistencies in the SEC's case, highlighting the agency's failure to correctly classify investment contracts transacted on the platform. Kraken also criticises the SEC’s employment of phrases such as “investment idea” and “ecosystem” in lieu of “investment contract” and “business”, arguing this demonstrates a misinterpretation of legal aspects of the case. In November of last year, the SEC initially took legal action against Kraken, accusing it of illicitly earning millions from cryptocurrency asset securities transactions and providing services like “exchange, brokerage, dealing, and clearing agency” without having registered with them, in violation of the law. This followed the resolution of charges over Kraken’s now-discontinued staking service. Conversely, Kraken submitted a plea for dismissal, warning that it sets a worrisome model for the SEC’s power reach. The SEC countered with a 39-page opposition to Kraken’s dismissal plea, stating that their enforcement action is entirely within the legal limits given to the SEC by Congress. In the latest motion filed on Thursday, Kraken challenges the SEC's assertion that investment contracts necessitate written agreements, emphasizing that contracts can be verbally agreed upon, explicit or implied. Kraken proposes that the SEC's attempts to dispute unaddressed arguments reveal a misunderstanding of the case’s crucial points. To fortify its case, Kraken references earlier SEC lawsuits regarding initial coin offerings (ICOs). The platform stresses that these lawsuits revolved around contractual responsibilities and rights, thus aligning with Kraken's interpretation of investment contracts. Kraken's defence is largely reliant on an interpretation of the SEC’s authority via the Howey test. This test determines what classifies as security on the basis of certain parameters: the anticipation of profit from the investment of capital in a shared business, linked with the endeavours of others. Concurrently, the US Congress is considering crypto regulation amid several ongoing bills, while eight American state attorneys have collectively filed a friend of the court brief arguing that the Securities and Exchange Commission overstepped its given power in its lawsuit against the cryptocurrency platform Kraken.
Published At
5/10/2024 12:25:02 PM
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