Bitrabo Editorial
Kraken, a prominent crypto exchange, has taken a strong stance against the US Securities and Exchange Commission (SEC) by responding formally to the lawsuit, supporting its motion for dismissal. The filing, dated May 9, 2024, contests the SEC’s accusation that Kraken conducted unregistered exchange activities involving securities, particularly “investment contracts.”
Represented by Matthew C. Solomon of Cleary Gottlieb Steen & Hamilton LLP, Kraken’s legal team challenges the SEC’s claims, stating that no specific investment contracts have been identified in the trades on Kraken’s platform. They argue that crypto assets, the sole products in question, do not meet the criteria for investment contracts under federal securities laws.
Defense of the Crypto Industry
The filing highlights a key flaw in the SEC’s argument, criticizing the agency for blending primary offerings conducted elsewhere with secondary market transactions on Kraken. Kraken’s lawyers argue that there should be a distinction in legal treatment between primary and secondary market transactions as outlined in the Securities Act of 1933 and the Securities Exchange Act of 1934.
Kraken’s submission argues, “The transactions on Kraken are blind bid/ask secondary market sales of digital assets… without any contractual terms from the initial offering.” They contend that extending the SEC’s regulatory authority to nearly all digital assets or commodities based on an “investment concept” or “ecosystem” could be improper.
In challenging the SEC’s jurisdiction, Kraken’s legal team invokes the major questions doctrine, suggesting that any broad interpretation of regulatory control over crypto assets should be explicitly granted by Congress rather than determined through legal battles. They assert that the conditions of the Howey Test, used to identify investment contracts, are not fulfilled in this case.
The court will hear arguments on June 12, 2024, regarding Kraken’s motion to dismiss. A favorable ruling for Kraken could establish a significant legal precedent for the crypto industry by potentially limiting the SEC’s authority to regulate secondary market crypto asset transactions under the existing legislative framework.
Bitcoin was trading at $63,237 at the time of reporting.