SEC seeks dismissal of Kraken defenses in ongoing legal dispute


The United States Securities and Exchange Commission maintains regulatory pressure on the cryptocurrency exchange Kraken in ongoing legal action.

On Nov. 5, the SEC filed a motion to dismiss three of the Kraken’s defenses to the commission’s allegations that the crypto exchange has been operating without registration.

An excerpt from the SEC’s motion to dismiss Kraken’s defense on Nov. 5. Source: CourtListener

The SEC dismissed Kraken’s defense claims about a lack of clarity around US securities laws and their application to the crypto industry.

The SEC also seeks the court to deny Kraken’s assertions that the exchange was not given fair notice about alleged violations of the securities laws in the US.

Court denied Kraken’s motion to dismiss SEC lawsuit in August

The SEC initiated a lawsuit against Kraken in November 2023, accusing the exchange of illegally operating as a securities exchange without first registering with the regulator. The commission argued that Payward Inc and Payward Ventures, which operate as Kraken, have violated securities laws since 2018.

The action has gone through several stages so far, with a US federal court denying Kraken’s motion to dismiss the SEC lawsuit in August.

The legal battle between the SEC and Kraken didn’t stop there, as Kraken subsequently disputed SEC allegations in a September filing.

“The SEC has no authority to regulate Kraken’s digital asset trading platform […] because the Digital Assets are not securities or investment contracts,” Kraken stated in a court filing in September.

“Legally unsupportable defenses”

In the latest court communication, the SEC argued that Kraken’s eighth, ninth and tenth affirmative defenses about the major questions doctrine are “due process fails as a matter of the law.”

The SEC specifically argued that the term “investment contract” from the Securities Act of 1933 and the Securities Exchange Act of 1934 is “not unconstitutionally vague and provides fair notice.”

Related: Trump victory: US crypto industry anticipates clarity, success

The commission urged the court to dismiss the defenses, stressing that if they aren’t rejected, Kraken will pursue “irrelevant and burdensome discovery under the pretense that the discovery somehow relates to its due process defenses.” The SEC stated:

“The presence of these defenses would not render their discovery relevant, but their absence would preclude Kraken from making that argument and avoid the Court having to resolve the dispute.”

The news comes amid the crypto industry expressing strong hope that the SEC will change its approach to crypto regulation following Donald Trump’s win in the 2024 US presidential election on Nov. 5.

Kraken co-founder Jesse Powell donated $1 million to Donald Trump’s presidential campaign. Source: Jesse Powell

As the SEC has targeted multiple crypto exchanges like Coinbase and Binance with similar actions, many in the industry believe that the SEC is a “misguided federal agency” that acts beyond its authorization under the law.

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