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Kraken has strongly rejected the U.S. Securities and Exchange Commission’s (SEC) claims that the cryptocurrency exchange violated federal securities laws by offering unregistered securities. In a legal response, Kraken argued that the digital assets cited by the SEC—such as Cardano (ADA), Algorand (ALGO), Cosmos (ATOM), and others—do not qualify as securities under the U.S. legal framework.
Kraken’s Legal Defense
Kraken’s defense relies on the argument that the assets mentioned are not “investment contracts,” which are traditionally used to define securities under the Howey Test. This test, derived from the Supreme Court case SEC v. W.J. Howey Co., is the key legal precedent for determining whether a transaction qualifies as an investment contract. Kraken claims that the SEC has not demonstrated that the digital assets meet the Howey criteria, and therefore, they do not fall under the regulator’s jurisdiction.
Claims of Regulatory Overreach
The exchange also criticized the SEC’s regulatory approach, stating that the agency is overstepping its authority by classifying these digital assets as securities. Kraken further argued that there is a lack of regulatory clarity regarding how the SEC applies securities laws to cryptocurrencies, making it difficult for the exchange to comply. The exchange emphasized that the SEC did not provide “fair notice” that Kraken’s activities were prohibited under current securities laws.
Industry Criticism of the SEC
Kraken’s stance reflects broader concerns in the crypto industry about the SEC’s regulatory actions. Key figures like Stuart Alderoty of Ripple and Paul Grewal of Coinbase have previously criticized the SEC for its lack of consistency and clarity in dealing with digital assets. For example, Ripple has been in a prolonged legal battle with the SEC, disputing the claim that XRP is a security. Critics argue that the SEC has created confusion by coining terms like “crypto asset securities,” without offering clear guidance to the industry.
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Kraken’s response is part of the ongoing legal friction between crypto companies and the SEC, highlighting the pressing need for clearer regulations regarding digital assets in the U.S.
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