Crypto exchange Kraken has requested a U.S. court to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC), arguing that accepting the SEC’s claims would lead to a substantial reshaping of the U.S. financial regulatory framework. The motion was filed in the Northern District of California.
Background of the Case
The SEC’s lawsuit against Kraken began in November, accusing the exchange of operating without proper registration as a broker, clearinghouse, or exchange. This legal action follows a prior settlement regarding Kraken’s staking services. In response, Kraken has contended that the cryptocurrencies mentioned in the SEC’s lawsuit should be classified as commodities rather than securities.
The Core of the Dispute
Kraken’s defense hinges on the interpretation of the Howey test, which is used to determine whether certain transactions qualify as investment contracts and thus, are subject to securities laws. According to Kraken, the cryptocurrencies in question do not meet the Howey test’s criteria of an investment of money in a common enterprise with a reasonable expectation of profit predominantly from the efforts of others.
Also Read: Kraken Enhances U.S. Presence with TradeStation Crypto Acquisition
SEC’s Stance
In opposition, the SEC argued in a 39-page filing last month that its enforcement actions are well within the authority granted by Congress. The SEC maintains that its application of the Howey test is appropriate and denies that it is overstepping its regulatory powers. The agency emphasized that no new powers are being assumed and that existing laws are sufficient to handle emerging technologies.
Implications of the Court’s Decision
The outcome of this legal battle could have significant implications for the cryptocurrency industry in the United States. If the court sides with Kraken, it could limit the SEC’s ability to regulate certain crypto activities. Conversely, a victory for the SEC could lead to increased regulatory obligations for crypto exchanges and other platforms operating within the sphere.
