Kraken vs SEC: State AGs Challenge Lawsuit’s Authority

The ongoing legal battle between the Securities and Exchange Commission (SEC) and cryptocurrency exchange Kraken has taken a new turn as eight state attorneys general in the United States have joined the fray.

According to a report by Yahoo Finance, in a joint amicus brief filed on Thursday, these attorneys general from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas collectively argued that the SEC’s lawsuit against Kraken exceeds the regulator’s authority.

State AG’s Oppose Regulatory Overreach in Kraken by SEC

The amicus brief, which serves as a legal opinion provided by non-litigants with a strong interest in the case, asserts that the SEC’s attempt to regulate crypto assets as securities without an investment contract goes beyond the powers delegated to the agency by Congress.

The attorneys general maintained that such regulatory overreach by the SEC poses a threat to consumer protection and could potentially preempt state laws tailored to address the specific risks associated with non-securities products.

Highlighting their concerns, the joint submission highlights the significance of refusing to classify crypto assets as securities when lacking an investment agreement. The attorneys general contend that the SEC’s unauthorized exercise of power not only goes beyond its intended scope but also endangers consumers in states by ignoring state laws more appropriate for addressing the distinct issues of non-securities offerings.

Kraken Counters SEC’s allegations

This development comes in response to Kraken’s motion to dismiss the SEC’s lawsuit, where the crypto exchange challenged the regulator’s claims. Kraken argued that the SEC’s allegations were flawed, particularly its assertion that Kraken operates an unlicensed platform for “investment contracts” without providing evidence of any contractual agreements between Kraken users and token issuers.

The SEC’s lawsuit against Kraken, filed in November, accuses the cryptocurrency exchange of various violations, including operating without proper registration, failing to address known conflicts of interest, and mingling client funds.

Implications for Crypto Regulation

As the legal battle between Kraken and the SEC unfolds, the involvement of state attorneys general adds a new dimension to the dispute, underscoring the broader implications of regulatory actions in the cryptocurrency space. 

The outcome of this case could have significant ramifications for both the regulatory landscape surrounding crypto assets and the rights of state governments to enforce consumer protection laws within their jurisdictions.

Just last month, Jesse Powell, the CEO of Kraken, claimed that regulators tend to support unscrupulous industry participants while antagonizing those who operate ethically. He maintained that regulators pursue this approach to hinder the adoption of cryptocurrency, shield attacks on legitimate actors, and undermine resources and capital within the crypto space.