SEC trying to dismiss three Kraken defenses in lawsuit

The U.S. Securities and Exchange Commission is urging a federal court to reject three defenses filed by cryptocurrency exchange Kraken in an ongoing lawsuit over alleged securities violations.

The SEC’s motion, filed on November 5, challenges Kraken’s claim that there is insufficient legal clarity on which digital assets qualify as securities.

The SEC first sued Kraken in November 2023, accusing the exchange of operating as an unregistered securities exchange, broker and clearing house.

According to the SEC, Kraken’s platform facilitated the trading of cryptocurrency securities without proper registration and generated significant revenue for the exchange.

Kraken sought to dismiss the case in August, but the court ruled in favor of the SEC, allowing the case to proceed.

SEC rejects three defenses

In response to Kraken’s latest arguments, the SEC argued that Kraken’s invocation of the “fundamental issues doctrine” should be rejected. The principal questions doctrine holds that regulatory agencies require explicit congressional authorization for significant regulatory actions.

Kraken’s defense argues that the SEC lacks express authority to regulate digital assets as securities and that the term “investment contract” used to determine whether an asset qualifies as a security lacks sufficient clarity in this context.

The SEC rejected these allegations, arguing that existing securities laws were not vague and that Kraken had fair knowledge of what constituted a securities violation.

The SEC also challenged Kraken’s under-reporting defense, which argued that the exchange was not properly notified that its transactions violated securities laws. The commission found this defense legally flawed, arguing that it only served to expand the case by requiring extensive evidence unrelated to the main issues.

The SEC warned in its filing that accepting Kraken’s defense could lead to excessive and “irrelevant” document requests, complicating and delaying the legal process. The commission argued that rejecting these defenses would facilitate the case and prevent unnecessary waste of judicial resources.