Crypto exchange Kraken says SEC lawsuit is destined for failure

Cryptocurrency exchange Kraken has become the latest digital asset platform to come into the crosshairs of US regulators.

A complaint filed by the Securities and Exchange Commission (SEC) in the Northern District of California alleged that Kraken’s parent company Payward Ventures has been offering investment contracts without the proper oversight.

According to the SEC: “Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange, and clearing agency with respect to these crypto asset securities.

“In doing so, Kraken has created risk for investors and taken in billions of dollars in fees and trading revenue from investors without adhering to or even recognizing the requirements of the U.S. securities laws that are designed to protect investors.”

The SEC has made similar accusations against Coinbase Global Inc (NASDAQ:COIN), Binance and Ripple Labs as part of a broader crackdown on what the regulator sees as unregistered securities offerings in the US.

In February of this year, Kraken, which is the third-largest crypto exchange behind Coinbase and Binance, dropped its staking service after copping a $30 million fine from the SEC.

“We disagree with the SEC, and the law is on our side,” wrote Kraken in a blog post in response to the latest complaint.

Kraken stated that the SEC’s complaint “makes a technical argument” that the exchange requires special securities licenses to operate, since the digital assets offered on the platform constitute investment contracts under the Howey Test.

‘The SEC’s case against Kraken will fail’
The SEC partially failed to convince US lawmakers of a similar argument it made against Ripple Labs, the developers of the XRP cryptocurrency.

The courts determined that while XRP could be considered a security when sold to institutional investors, it wasn’t when purchased by average individuals on public exchanges.

“The SEC’s case against Kraken will fail, too, and for the same reasons,” Kraken boasted.

The blog post continued: “The SEC famously argues that digital asset trading platforms like Kraken can simply ‘come in and register’ with the agency. As most securities law experts know, there is not a single law on the books supporting this position.

“The SEC has promulgated no rule describing how an order in a digital asset should be matched, no guidance on how a trade should be cleared, and articulated no standards for how to broker a digital asset transaction.

“The allegation is hollow; there is no such thing as an exchange, broker dealer, or clearing agency for investment contracts. The SEC is demanding compliance with a regime that doesn’t exist.”

Kraken sought to reassure users that the SEC’s complaint will have no immediate impact on the exchange