Cryptocurrency exchange Kraken filed a motion to dismiss the SEC’s lawsuit against the firm where the Commission alleges Kraken operates as an unregistered securities exchange, broker, dealer, and clearing agency.
Crypto exchange Kraken is fighting the US Securities and Exchange Commission’s allegations that it operates an unregistered exchange and co-mingled customer assets with its own. Kraken filed a motion to dismiss the agency’s lawsuit.
Kraken Joins Binance and Coinbase in the Fight Against the SEC
Kraken filed a motion to dismiss the SEC’s lawsuit against the firm, which alleges the firm operates as an unregistered securities exchange, broker, dealer and clearing agency. In a February 22 blog post, the exchange said it is moving forward to dismiss the case, arguing SEC overreach.
(10/10) The U.S. risks losing its standing as a world leader in innovation if it continues allowing its regulatory agencies to assert statutory authority without explicit permission from Congress.Read more: https://t.co/BjGyIZgUhL
— Dave Ripley (@DavidLRipley) February 23, 2024
Kraken explained it seeks dismissal after the SEC sued the exchange a day after it testified before the House Financial Services Committee and the House Agricultural Committee about the agency’s overreach in the crypto industry. In its blog post, the exchange said:
“Kraken testified that current laws do not adequately cover the digital asset industry, and that Congress could do more to put in place a set of rules to better protect consumers and investors.
Kraken testified that in any new set of crypto exchange rules, Congress should limit the SEC’s jurisdiction in favor of other agencies. The next day, the SEC called Kraken to say it was going to sue.”
In its motion, Kraken argued:
“The SEC does not have the authority to regulate all speculative investments.”
The exchange further contends the SEC’s complaint did not claim any fraud or consumer harm and made only a “registration-based argument that Kraken operates as an unlicensed securities exchange, broker, dealer and clearing agency because crypto tokens are so-called “investment contracts.”
Kraken joins the likes of Binance, Binance US and Coinbase, which have filed similar motions.
SEC Alleges Kraken Mishandled Customer Information
In its lawsuit, the SEC alleges:
“Since at least September 2018, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities […] 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.”
The regulatory body further claims Kraken mishandled customer information, stating the exchange’s business practices and internal controls were lacking. According to the SEC, Kraken jeopardized customer’s personal and financial information due to their flawed business practices. The regulator alleged:
“Kraken commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash […] Kraken also allegedly commingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.”
At the time of the suit, Kraken vowed to defend itself against the SEC’s allegations. According to the exchange, it is Congress that should decide how to regulate crypto exchanges and stated in its blog post:
“Even taking all of the SEC’s allegations in the Complaint as true – and many are not – its argument is flawed as a matter of law.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
