Kraken Fights SEC Over Crypto as Commodities, Court Date June 12

Key Takeaway

• Kraken seeks to dismiss SEC lawsuit, arguing cryptocurrencies should be treated as commodities, not securities.
• The SEC insists its enforcement action is within Congress-granted authority, applying the Howey test to determine securities status.
• A court hearing on the matter is scheduled for June 12, potentially impacting U.S. financial regulatory structure.

Kraken's Legal Challenge to SEC

Kraken, a leading cryptocurrency exchange, has taken a bold step in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) by asking a U.S. court to dismiss the SEC's claims against it. The exchange argues that the SEC's actions could lead to a "significant reordering" of the U.S. financial regulatory structure, a move Kraken believes should be deliberated by Congress rather than decided in the courts. This legal confrontation stems from the SEC's lawsuit last November, accusing Kraken of operating without proper registration as a broker, clearinghouse, or exchange, following earlier charges related to Kraken's staking service.

Dispute Over Cryptocurrency Classification

At the heart of Kraken's motion to dismiss the SEC's lawsuit is the argument that cryptocurrencies should be classified as commodities rather than securities. This distinction is crucial as it determines the extent of the SEC's regulatory authority over crypto assets. Kraken's defense hinges on the application of the Howey test, a legal standard used to determine what constitutes a security. The exchange contends that the cryptocurrencies listed in the SEC's complaint do not meet the Howey test's criteria, challenging the SEC's jurisdiction over these assets.

SEC's Stance on Regulatory Authority

In response to Kraken's motion, the SEC filed a 39-page opposition, asserting that its enforcement action falls squarely within the authority granted by Congress. The SEC argues that it is not overstepping its bounds or assuming new powers but is merely applying existing securities laws to the case at hand. By invoking the Howey test, the SEC maintains that it is following its Congressional mandate to regulate securities, including those emerging from new technologies.

Legal and Linguistic Battles

Adding another layer to this legal saga, Kraken has criticized the SEC's wording in its filings, particularly the use of terms like "investment concept" and "ecosystem" instead of "investment contract" and "enterprise." This linguistic dispute underscores Kraken's challenge to the SEC's broad interpretation of securities law. The exchange's filing points out the SEC's failure to identify specific investment contracts traded, brokered, or settled on Kraken, questioning the agency's case's foundation.