Crypto Exchange Kraken Files to Dismiss SEC Lawsuit Against It

The
U.S.
Securities
and
Exchange
Commission
didn’t
allege
fraud
and
stretched
the
definition
of
a
contract
in
its
lawsuit
against
Kraken,
the
exchange
said
in
a
motion
to
dismiss
the
case
Thursday.

The
crypto
company

moved
to
kick
out
the
SEC’s
lawsuit,
filed
in
the
Northern
District
of
California,
arguing
that
cryptocurrencies
–
at
least,
those
listed
in
the
SEC’s
complaint
–
should
be
treated
like
commodities
and
not
securities.

The

SEC
sued
Kraken
last
November,
alleging
it
did
not
register
as
a
broker,
clearinghouse
or
exchange
and
saying
the
company
commingled
customer
and
corporate
funds,
months

after
settling
charges
over
Kraken’s
former
staking
service.

“The
SEC
does
not
allege
fraud.
The
SEC
does
not
allege
consumer
harm.
The
SEC’s
sole
claims
are
that
Kraken
has
somehow
operated
in
plain
sight
for
almost
a
decade
as
an
unregistered
securities
exchange,
broker-dealer,
and
clearing
agency,
in
violation
of
the
Exchange
Act,”
the
motion
said.

Kraken’s
motion
draws
on
other
arguments
made
in
ongoing
cases,
saying
comic
books
or
baseball
cards
can
be
investments
but
are
not
investment
contracts.
The
SEC
did
not
“plausibly
allege”
any
of
the
cryptocurrencies
listed
in
its
complaint
are
securities
or
investment
contracts,
according
to
the
motion.

As
part
of
its
argument,
Kraken
said
the
SEC
did
not
meet
the
requirements
set
out
by
the
Howey
Test,
a
Supreme
Court
precedent
used
as
a
benchmark
for
identifying
securities.

“The
SEC
tries
to
end-run
the
absence
of
any
purchaser-issuer
relationship
creating
a
reasonable
expectation
of
profits
based
on
the
efforts
of
the
issuer.
It
attempts
to
do
so
by
alleging
that
the
issuers
made
ongoing
public
statements
advertising
their
tokens
and
improvements
of
the
underlying
technology
platforms,
which
Kraken
customers
allegedly
relied
on
for
an
expectation
of
profits
based
on
their
efforts,”
Kraken
said.

It
also
likened
the
cryptocurrencies
listed
in
the
SEC’s
complaint
to
bitcoin
and
ether,
two
digital
assets
that
currently
have
derivatives
products
trading.

In

a
blog
post,
Kraken
also
said
the
SEC
is
overstepping
its
jurisdiction,
arguing
in
the
filing
that
there
is
a
Major
Questions
Doctrine
issue.

Kraken
did
not
address
allegations
by
the
SEC
that
it
commingled
customer
and
corporate
funds.
In
its
complaint,
the
SEC
used
the
alleged
commingling
as
an
example
of
conduct
that
wouldn’t
be
allowed
for
registered
entities.