Kraken Files to Dismiss SEC Lawsuit Arguing It Sets a ‘Dangerous Precedent’

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Tanzeel Akhtar

Journalist

Tanzeel Akhtar

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Tanzeel Akhtar has been covering the cryptocurrency and blockchain sector since 2015. She has written for the Wall Street Journal, Bloomberg, CoinDesk and Bitcoin Magazine.

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February 22, 2024 22:47 EST

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Kraken, a prominent cryptocurrency exchange, has filed to dismiss the Securities and Exchange Commission lawsuit saying that allowing this case to continue would set a “dangerous precedent.”

In the filing, Kraken has requested that the court dismiss the SEC’s case filed in November. The SEC alleged in November that the exchange’s parent companies were operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

The SEC has filed a similar lawsuit against Coinbase.

In a blog post, Kraken said: “Today, we filed a motion asking the Court to dismiss the SEC’s lawsuit against Kraken. The SEC’s Complaint did not claim any fraud or consumer harm whatsoever. It made only a registration-based argument that Kraken operates as an unlicensed securities exchange, broker, dealer and clearing agency because crypto tokens are so-called “investment contracts.”  Even taking all of the SEC’s allegations in the Complaint as true – and many are not – its argument is flawed as a matter of law.”

By allowing this case to continue sets a “dangerous precedent for agency overreach,” said Kraken in a blog post. The exchange stresses that the SEC never points to any “contract” between buyers on Kraken and token issuers, so there can’t be an “investment contract.”

Kraken adds that with no precedent to defend its self-serving attempt at expanding its jurisdiction, the SEC instead relies on ambiguity and contradiction.

“Vigorously Defend Our Position.” — Kraken 

Kraken denies the claims made by the SEC, stating it would “vigorously” defend its position. According to the SEC’s complaint, “since at least September 2018, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities.”

The commission seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains, interest, and penalties. However, it also included that it had settled with Kraken for $30 million in February. The SEC added that the exchange agreed to stop offering or selling securities through crypto asset staking services or staking programs.

In November, Jesse Powell, co-founder of crypto exchange Kraken, called the US regulators masochists attacking America and extortionists chasing crypto companies out of the country. Powell came after the country’s regulators, specifically the SEC.

The crypto exchange has argued that the SEC has made it difficult for crypto companies to register and comply with the unclear rules. Furthermore, it argued that the regulator “has repeatedly challenged crypto exchanges to come in and register,” but it doesn’t have “a single law” supporting its position.