Kraken Unravels Legal Battle With SEC and the Motion for Its Lawsuit Dismissal
Maybe staying in Abu Dhabi's ADGM would have been ideal for the crypto exchange?
On the morning of May 10, 2023, the halls of Capitol Hill echoed with the resolute voice of Kraken, as the leading cryptocurrency exchange testified before the House Financial Services Committee and the House Agriculture Committee.
In a major development, Kraken raised concerns about the Securities and Exchange Commission’s (SEC) regulatory overreach in the realm of digital assets.
During the testimony, Kraken highlighted the inadequacies of current laws in addressing the complexities of the digital asset industry. Emphasizing the need for a comprehensive regulatory framework, Kraken urged Congress to step up efforts in safeguarding consumers and investors.
A key point of contention voiced by Kraken was the call for Congress to limit the SEC’s jurisdiction, advocating for a balanced approach that prioritizes other regulatory agencies. The subsequent response from the SEC, however, was swift – a notification of legal action.
Kraken underscored the importance of protecting the political speech of crypto innovators, emphasizing the need for a conducive environment where advocacy for regulatory improvements can thrive without fear of reprisal.
Furthermore, Kraken championed the rights of U.S. crypto users, advocating for tailored regulations that prioritize consumer protection over bureaucratic power struggles.
The crux of Kraken’s defense against the SEC’s lawsuit lies in a meticulous legal argument. Kraken filed a motion to dismiss the lawsuit, challenging the SEC’s assertion that it operates as an unlicensed securities exchange. Crucially, Kraken refuted the SEC’s claim, highlighting the absence of any evidence of fraud or consumer harm.
As a matter of fact, Kraken dismantled the SEC’s argument, contending that the alleged “investment contracts” lacked the essential elements required by legal precedent. Drawing on decades of legal interpretation, Kraken emphasized the necessity of identifying a contractual relationship – a crucial point that the SEC’s case failed to substantiate.
Moreover, Kraken cast doubt on the SEC’s novel interpretation of securities law, exposing inconsistencies in the regulatory body’s assertions. By dissecting the SEC’s own terminology and highlighting contradictions in its stance on digital assets, Kraken challenged the legitimacy of the SEC’s expansive jurisdictional claims.
For example, in its complaint, the SEC uses a new term of its own creation, the “digital asset security.” It argues that digital assets are themselves securities, but then concedes that digital assets are just computer code, not contracts.
Also, the SEC says Bitcoin and Ethereum are not securities, even though the SEC’s concocted “ecosystem” theories would apply to those assets just the same as those at issue in the Complaint. Finally, the SEC’s Chair told Congress the SEC did not have the authority to regulate crypto exchanges, but now in this litigation, it claims it does. We ask the Court to dismiss the SEC’s Complaint on these grounds.
In a cry against regulatory overreach, Kraken underscored the dangerous precedent set by allowing the SEC’s case to proceed unchecked. By invoking the landmark Howey decision and the Major Questions Doctrine, Kraken argued against granting the SEC unchecked authority, stressing the importance of legislative oversight in shaping regulatory frameworks.
In fact, the SEC’s new interpretation suggests the existence of investment contracts without typical contractual elements, diverging from established Howey precedent. This broad approach lacks clear boundaries, giving the SEC unchecked control over commerce and potentially inviting numerous private securities claims. Everyday assets could be reclassified as securities, raising concerns for industries like sports memorabilia or diamonds.
The SEC’s recent use of this authority in crypto lawsuits represents a significant expansion, challenging decades of established case law and revealing newfound regulatory latitude almost a century after the Securities Exchange Act’s 1934 inception.
Despite the legal battle ahead, Kraken reaffirmed its commitment to fostering a transparent and accountable cryptocurrency ecosystem. With a steadfast dedication to advancing financial freedom and inclusion, Kraken vowed to continue advocating for coherent regulatory guidelines that benefit all stakeholders.
In a final plea to the courts, Kraken called for the dismissal of the SEC’s case, urging the restoration of legislative power to Congress, a pivotal step towards ensuring a fair and equitable regulatory landscape for the burgeoning cryptocurrency industry.
It is worth noting that following the acquisition of a local license, Kraken has closed its Abu Dhabi office after less than a year of operation.
In a reported restructuring move, the company planned to downsize its global workforce by nearly one-third, resulting in the layoff of the majority of its Middle Eastern and North African team, impacting roughly eight employees.
Notably, the Abu Dhabi Global Market registry no longer lists Kraken as an active entity. This closure comes amidst broader industry shifts and regulatory considerations.
