Kraken files a motion to dismiss in opposition to SEC lawsuit
The exchange stated in a move to dismiss the case on Thursday that the U.S. Securities and Exchange Commission did not prove fraud and interpreted a contract too broadly in its complaint against Kraken.
The cryptocurrency startup filed a motion to dismiss the SEC’s case in the Northern District of California, claiming that cryptocurrencies, or at least those included in the SEC’s complaint, ought to be regarded as commodities rather than securities.
Months after resolving allegations with Kraken’s previous staking business, the SEC sued the firm in November of last year, claiming it never registered as a broker, clearinghouse, or exchange and that it had mixed consumer and corporate assets.
Fraud is not alleged by the SEC. No harm to consumers is claimed by the SEC. The motion said that the only allegations made by the SEC are that Kraken violated the Exchange Act by operating as an unregistered securities exchange, broker-dealer, and clearing agency for over ten years while remaining undetected.
In support of his move, Kraken cites prior legal arguments that comic books and baseball cards are investments but not investment contracts. The argument states that the SEC did not “plausibly allege” that any of the cryptocurrencies included in its complaint are securities or investment contracts.
Kraken included in its case that the SEC had failed to comply with the standards outlined in the Howey Test, a Supreme Court decision that serves as a guide for identifying securities.
The SEC attempts to circumvent the lack of a buyer-issuer connection by establishing a reasonable expectation of profits predicated on the issuer’s efforts. In an attempt to do this, Kraken claims that its consumers rely on the issuers’ continuous public declarations promoting their tokens and the advancements of the underlying technological platforms in the hope of earning benefits from their labor.
Additionally, it compared the cryptocurrencies mentioned in the SEC’s lawsuit to ether and bitcoin, two digital assets that are actively traded in derivatives.
In the complaint, Kraken argued that there is a Major Questions Doctrine concern and also said that the SEC is beyond its jurisdiction.
The SEC had claimed that Kraken had mixed company and client funds. Kraken had not responded to this claim. The SEC cited the purported commingling as an instance of behavior that registered organizations would not be permitted to engage in its complaint.
