Kraken Challenges SEC Allegations Over Digital Assets

Jimmy Aki
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Kraken, one of the largest cryptocurrency exchanges, has rejected the allegations made by the U.S. Securities and Exchange Commission (SEC) regarding the classification of digital assets. The SEC accuses Kraken of offering several unregistered securities on its platform, claiming that the exchange violated federal laws.

Kraken Denies SEC Allegations

The SEC’s claim targets multiple digital assets, including popular cryptocurrencies such as Cardano (ADA), Algorand (ALGO), and Cosmos (ATOM), among others. According to the SEC, these assets meet the criteria for being considered securities, a claim Kraken firmly disputes.

In its legal response, Kraken argues that the SEC’s interpretation is flawed and that the assets in question do not fit the legal definition of securities outlined by U.S. law. Specifically, Kraken asserts that these digital assets are not investment contracts and do not fall under the SEC’s regulatory authority.

Kraken’s defense depends heavily on the Howey Test, a legal standard set by the U.S. Supreme Court in SEC v. W.J. Howey Co, which defines what constitutes an investment contract.

Kraken insists that the digital assets it offers, such as ADA, ALGO, ATOM, and others, do not meet the criteria established by the Howey Test.

“Kraken did not violate Sections 5, 15(a), and 17A of the Securities Exchange Act of 1934 because ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL are not securities or investment contracts,” Kraken stated in its legal filing.

The exchange maintains that the SEC has not provided sufficient evidence to prove that these digital assets qualify as securities, pushing back against the regulator’s broad interpretation of the law.

Criticism of SEC’s Approach

In addition to denying the SEC’s claims, Kraken also criticized the agency’s approach to regulating the crypto market. The exchange accused the SEC of overreaching its authority and acting without providing clear guidelines for companies operating in the digital assets space.

“The SEC has no authority to regulate Kraken’s digital asset trading platform because the Digital Assets are not securities or investment contracts,” Kraken’s legal filing states.
The exchange also shows the lack of clarity in federal securities laws as a key point of contention, arguing that Kraken had no fair notice that its conduct was prohibited.

This lack of clarity has been a major issue for many in the crypto industry, as they claim the SEC has not clearly defined the regulatory framework for digital assets.

Kraken’s legal team argues that without proper guidance, it is unfair to hold companies accountable for violations they could not have foreseen.

Kraken’s stance against the SEC comes among broader criticism of the regulator from other leading figures in the cryptocurrency industry.

Notably, Stuart Alderoty, chief legal officer at Ripple, has also voiced his concern about the SEC’s approach. Alderoty criticized the SEC for its handling of the term crypto asset securities, calling it a twisted pretzel of contradictions.

Kraken is not the only exchange in a tussle with the SEC on the allegation of offering unregistered securities. Binance, Coinbase, and Ripple have been in the news for a similar fate with the regulator, which did not exclude lawsuits against their promoters.

In August, NBA player Jimmy Butler and crypto YouTuber Ben Armstrong ‘BitBoy’ settled a Binance promotion lawsuit for $340,000. Butler was billed to pay $300,000, and Armstrong was billed to pay $40,000.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.