Kraken, the cryptocurrency exchange, is pushing back against the US Securities and Exchange Commission's (SEC) claims that it sold digital assets considered unregistered securities. The San Francisco-based platform asserts that the assets traded on its platform don’t meet the definition of securities, as defined by US federal law.
Legal Battle Over Securities Definition
In response to the lawsuit, Kraken argues that cryptocurrencies like Algorand (ALGO), Cosmos (ATOM), Polygon (POL), Filecoin (FIL), Solana (SOL), and Cardano (ADA)—all available on its platform—are not securities or investment contracts. This argument is central to Kraken's defense, as the company is set to face the SEC in a jury trial.
The SEC claims that Kraken has been operating as an unregistered exchange, but Kraken emphasizes that it tried to cooperate with the agency. However, Kraken states that the SEC has made cooperation difficult, choosing instead to aggressively pursue enforcement actions. The crypto company has cited the Howey Test, a key legal precedent used to determine if a transaction qualifies as an investment contract, in its defense.
Support and Opposition
The lawsuit, which was filed in November 2023, has sparked widespread criticism from Kraken CEO Jesse Powell, who called the SEC’s actions a “recurring attempt” to regulate through enforcement. Kraken has also found support from US Senator Cynthia Lummis, who criticized the SEC’s approach and urged the creation of clearer crypto regulations.
The crypto exchange is not alone in its fight. Several states have stood up in defense of crypto businesses as the SEC's crackdown has intensified. These states argue that their own strict consumer protection laws are sufficient and that the SEC’s federal overreach is unnecessary. The ongoing case is part of the SEC’s broader strategy to regulate the crypto industry, which has also impacted other major players like the NFT platform OpenSea.
The Road Ahead
Kraken’s decision to take the case to a jury trial follows a judge’s ruling that allowed the SEC’s lawsuit to proceed. This trial is likely to become a significant moment in the legal battle over how digital assets are classified under US law. Kraken’s position, backed by the argument that the SEC hasn’t been able to prove these assets qualify as securities, will be critical to the outcome.
At a broader level, the crypto industry is watching this case closely as it could set an important precedent. The SEC’s heavy-handed approach, which has often been criticized as lacking clear guidelines, continues to create uncertainty for businesses trying to navigate the rapidly evolving space of digital assets. As the case unfolds, Kraken is preparing to argue that digital assets like those listed on its platform should not be subjected to securities regulations.
