Cryptocurrency exchange Kraken is fighting back against the U.S. Securities and Exchange Commission (SEC) and demanding a jury trial in response to the agency's ongoing lawsuit.
What happened: The legal battle, filed in the Northern District of California, comes as Kraken faces accusations of failing to register as a broker-dealer, exchange or clearinghouse under federal securities laws, an allegation that has also been leveled against cryptocurrency giants. Binance and Coinbase COINCoindesk reported.
Last month, a California judge ruled that the SEC’s case against Kraken would proceed to trial, echoing similar rulings in lawsuits against Binance and Coinbase.
The SEC initially filed its complaint in November 2022, seeking to prevent Kraken from committing further securities violations and to recover what it described as “ill-gotten gains.”
The SEC specifically identified 11 tokens, including ADA, ALGO, ATOM, FIL, and SOL, as unregistered securities.
In its latest court filing, Kraken reaffirmed its denial of any wrongdoing, filing 18 legal defenses against the SEC's claims.
A central element of Kraken's argument is its claim that Securities law and the Exchange Law—the laws under which the SEC operates—do not explicitly include digital assets.
As such, Kraken argues that it was never required to register with the agency as it does not qualify as an exchange, broker-dealer or clearing agent under the current legal framework.
“Digital assets themselves cannot be investment contracts because they do not carry any of the rights and obligations of a stock, bond, or any other financial asset that Congress has said is subject to SEC regulation,” Kraken’s filing argued.
Kraken has admitted to offering services such as margin trading and an over-the-counter trading desk, but maintains that these offerings do not make the platform a stock exchange.
The company also accused the SEC of overreach, alleging the agency acted “without due process and fair notice,” even suggesting the regulatory action infringed on Kraken’s First Amendment rights.
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Why it is important: The Kraken lawsuit is part of a broader regulatory crackdown on the cryptocurrency industry. In 2024, the SEC imposed record fines on cryptocurrency companies, with penalties skyrocketing by more than 3,000% compared to the previous year. This increase in fines is highlighted by the landmark $4.5 billion settlement with Terraform Labs, making 2024 the most penalized year for the cryptocurrency sector.
Moreover, Kraken’s legal battle mirrors other high-profile cases, such as Coinbase’s partial victory in its court fight against the SEC. Coinbase managed to force the SEC to produce documents on the classification of tokens as securities, a crucial aspect of the ongoing debate over the regulation of digital assets.
With the Benzinga Future of Digital Assets event set for November 19, key stakeholders will no doubt be watching closely as Kraken’s defense could shape future discussions about regulatory frameworks and the changing legal status of digital assets.
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