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Kraken refutes SEC's claim that it offered ‘investment concepts’

Kraken says SEC lacks evidence to back securities claims

An illustration depicts a Kraken sea monster and SEC eagle facing off in a courtroom battle over cryptocurrency regulations

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In a recent court filing, crypto exchange Kraken has refuted the Securities and Exchange Commission’s (SEC) claims that its platform listed securities.

Primarily, Kraken argues that the financial regulator is attempting to expand its regulatory scope by using vague terms like investment “concept” and “ecosystem” as substitutes for well-defined legal terms such as “investment contract” and “enterprise.”

Kraken’s lawyers contend that the SEC has failed to pinpoint tradable investment contracts on its platform, instead relying on broad and ill-defined concepts to assert its jurisdiction over digital assets.

The exchange argues that the SEC’s approach could result in a significant reordering of the U.S. financial regulatory structure, transforming the sale of any digital asset or commodity into an investment contract at the agency’s discretion.

“The SEC cannot satisfy Howey’s additional requirements that there be investments of money in a common enterprise with a reasonable expectation of profits based on the efforts of others,” Kraken lawyers stated.

The crypto exchange maintains that the digital assets traded on its platform are not securities and that the SEC’s action amounts to an “agency power grab” that runs afoul of the major questions doctrine, as established by the Supreme Court.

Kraken also asserts that such a substantial shift in the US financial regulatory landscape should be debated in Congress rather than decided in the courts.

The SEC, in its opposition to Kraken’s motion to dismiss, has argued that it is not assuming new powers and that Congress does not need to enact specific laws for each new technology that emerges. The agency contends that it is simply following its Congressional mandate by applying the Howey test to determine whether Kraken must register as a securities intermediary.

However, Kraken’s lawyers argue that the SEC cannot satisfy the additional requirements of the Howey test, which would significantly expand the agency’s jurisdiction to a wide range of investment activities that were never delegated to it.

The exchange maintains that the SEC’s failure to provide clear definitions and consistent guidance on what constitutes a security has led to uncertainty and confusion in the cryptocurrency industry.

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