State AGs Show Support for Kraken, File Legal Opinion Against the SEC
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Multiple state attorneys general (AGs) have rallied behind the crypto exchange Kraken, challenging the US Securities and Exchange Commission (SEC) for overstepping its bounds. The AGs argue that the SEC’s actions could endanger consumers and stifle innovation in the crypto sector.
SEC Overstepping Delegated Authority
On February 29, the state attorneys general jointly submitted an amicus brief to the court. They clearly stated their points as to why the SEC has exceeded its authority in its lawsuit against the crypto exchange Kraken.
An amicus brief, or an amicus curiae, is a legal opinion submitted to a court. It is provided by entities not involved in the case, offering advice or information related to the legal matter.
“The SEC’s enforcement action exceeds its delegated powers,” the filing reads.
The state officials representing Nebraska, Ohio, Texas, South Dakota, Iowa, Montana, Arkansas, and Mississippi filed the legal document.
The filing reads that the court should reject categorizing crypto assets as securities absent an investment contract. It also asserts that the SEC’s exercise of this unassigned authority endangers state consumers by preempting state statutes specifically designed for non-securities products. The AGs further noted that Congress has yet to delegate such authority to the SEC.
The officials also revealed their intention to prevent breaches of state laws. This includes consumer protection laws by the SEC’s crusade to classify crypto assets as securities.
Earlier this week, the Chamber of Digital Commerce (CDC), a trade body, filed an amicus curiae in solidarity with Kraken. The CDC opposes the SEC’s aggressive regulatory tactics, arguing they could stifle innovation within the US crypto sector.
Kraken Believes Suit Is Political Retaliation
The joint effort from the AGs comes a few days after Kraken filed a motion to dismiss the SEC’s lawsuit. The federal agency had accused the exchange of running an unregistered exchange and commingling customer funds.
Alongside the court filing, the exchange published a blog post accusing the regulator of presenting a flawed argument without evidence.
Kraken said none of the tokens on its lineup qualify for the Howey Test, a model used by the SEC to classify the sale of securities as “investment contracts.”
The blog post stated that for eight decades, the U.S. Supreme Court and Ninth Circuit (where this case was filed) have always required the SEC to identify a contract when finding the existence of an investment contract.
Additionally, the exchange argued that the agency did not accuse them of fraudulent activity or disservice to crypto investors. This raises questions about the basis for the legal claim.
Kraken considers the SEC’s enforcement action a retaliatory measure for political speech granted by one of its executives. This echoes sentiments expressed by competitors like Binance and Coinbase.
Kraken was served the lawsuit notice the day after its chief legal officer, Marco Santori, testified before Congress about the SEC’s overreaching powers.
