Kraken Challenges SEC Lawsuit, Alleges Retaliation for Political Speech

On Thursday, Kraken, a cryptocurrency exchange, filed a motion to dismiss a lawsuit from the Securities and Exchange Commission (SEC) dated November, accusing the U.S.-based firm of failing to register with the agency and commingling customer funds.

Kraken’s response, detailed in a blog post, mirrors legal arguments used by competitors Binance and Coinbase in similar lawsuits. The exchange contends that the enforcement action is retaliation for political speech, as Kraken received notice of the lawsuit the day after Chief Legal Officer Marco Santori testified about SEC overreach in front of Congress in May.

Crypto innovators in the United States should not have to fear retaliation for their political speech,” the post on the blog contends. An agency that has been corrupted politically ought not to be able to intimidate them.

Established in 2011, Kraken was among the early cryptocurrency exchanges in the U.S., though it has trailed behind Coinbase and Binance in trading volume. In February 2023, Kraken settled with the SEC for $30 million over a staking feature offered to customers, considered by the SEC as offering unregistered securities.

In November, the SEC filed a new lawsuit against Kraken, focusing on its crypto trading business. Similar to suits against Coinbase and Binance, the SEC alleged that Kraken operated as a traditional securities exchange, broker, dealer, and clearinghouse without registering with the agency.

The SEC claimed that Kraken commingled customers’ money with its own, citing an independent auditor hired by the exchange. However, Kraken wasn’t accused of misappropriating customer funds, unlike the ill-fated FTX exchange.

Kraken’s attorneys argue that the SEC does not allege “fraud” or “consumer harm” and dispute the SEC’s broad interpretation of crypto assets as securities. The filing does not directly address the allegations of commingling.

The lawsuits against Kraken, Binance, and Coinbase hinge on whether cryptocurrencies are classified as securities and fall under SEC jurisdiction. The resolution of these cases will likely occur through the appeals process unless Congress enacts new regulations, which seems unlikely in an election year.

Kraken expressed support for coherent rules in the crypto industry but criticized the SEC, stating that it is moving in the wrong direction.

Related – The Future of Cryptocurrency in the Next 5 Years

Leave a Comment