Kraken Moves to Dismiss SEC Lawsuit

Reading Time: 2 minutes
  • Kraken has filed a motion to dismiss a lawsuit brought by the SEC which alleges failure to register as a seller of securities and commingling funds
  • Kraken argues that the SEC’s action stems from retaliation for political speech, echoing similar claims made by competitors like Coinbase
  • The legal battle once again focuses on the classification of cryptocurrencies

Cryptocurrency exchange Kraken has filed to dismiss a lawsuit initiated by the US Securities and Exchange Commission (SEC), claiming the lawsuit is a response to the exchange’s political stance. The lawsuit alleges that Kraken violated regulations by failing to register with the agency as a seller of securities and by mixing customer funds with its own. Kraken, however, has countered these claims, contending that the SEC’s lawsuit is essentially a form of retaliation for the firm’s outspoken political outlook, aligning with similar arguments made by its competitors, including Coinbase and Binance, who have faced similar legal challenges.

Kraken Claims Political Bias Has Harmed It

Kraken stated in its filing that it believes the lawsuit stems from an incident in May 2023, when Kraken’s Chief Legal Officer, Marco Santori, testified before Congress regarding what he saw as overreach by the SEC; Kraken received the lawsuit from the SEC just one day after Santori’s testimony. This timing has led Kraken to claim that the lawsuit is a direct response to their political speech, claiming that it represents a worrying trend of regulatory overreach.

Established in 2011, Kraken is among the earliest cryptocurrency exchanges in the United States. Despite its seniority in the industry, Kraken has faced regulatory hurdles. In February 2023, Kraken settled with the SEC for $30 million over a staking feature it offered, which the SEC deemed constituted the offering of unregistered securities. This led to Kraken ceasing its staking program in the US.

In the latest lawsuit, the SEC alleges that Kraken operated as a traditional securities exchange, broker, dealer, and clearinghouse without proper registration. The complaint specifically points to several crypto assets offered on the platform, including SOL, MATIC, and ADA, which the SEC argues are securities. Moreover, the SEC accuses Kraken of commingling customer funds with its own, a serious charge reminiscent of the issues that led to the downfall of FTX.

Securities Question Remains Unsolved

The legal battle between Kraken and the SEC hinges on the fundamental question that has dogged many of the high-profile lawsuits brought by the SEC: whether cryptocurrencies constitute securities and thus fall under the jurisdiction of the SEC. Kraken’s legal team has vehemently argued against this notion, citing the lack of fraud or consumer harm in their operations.

The victory by Ripple over the SEC last year regarding this matter represented a huge victory for the crypto space over the SEC, and Kraken hopes that by getting its case dismissed it can add pressure to the SEC over its outlook.