Kraken Disagrees With SEC’s Claims of It Offering Securities

Kraken fired back at the US SEC to highlight that its approach to deeming digital assets as securities is flawed.

US-based cryptocurrency exchange Kraken has taken a stand against the Securities and Exchange Commission (SEC) as the regulator’s suit claims the exchange offers unregistered securities. The suit alleges that Kraken lists and sells numerous crypto assets that are securities, thereby breaking federal laws.

“The SEC has pointed to no transactions where investment contracts were allegedly formed on Kraken. The digital assets themselves cannot be the investment contracts because they carry none of the rights and obligations of a share of stock, a bond, or any other financial asset that Congress has said is subject to SEC regulation,” Kraken said in a court filing in response to the SEC’s suit. “The digital assets themselves are the only things that are traded, brokered, or settled on Kraken.”

The crypto exchange further cited the Howey Test—a measure used to determine if financial instruments are securities or not—to assert that the digital assets it offers are not securities. It mentioned how the SEC never proved that the assets it calls securities are, in fact, securities using the Howey Test. Furthermore, it denied the SEC’s allegations of engaging “in the conduct of a securities exchange, broker, dealer, or clearing agency.”

Regarding the assets the SEC claimed that Kraken had sold as unregistered securities, the exchange strongly disagreed, saying, “Kraken did not violate Sections 5, 15(a) and 17A of the Securities Exchange Act of 1934 because ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL (together, the “Digital Assets”) are not securities or investment contracts.”

The SEC Was Under Fire for Its Recent Comments

As Kraken denied these allegations, the SEC mentioned in a footnote of another filing related to a securities violations case against Binance that the term “crypto asset security,” which it uses often, does not refer specifically to tokens. Coinbase’s Paul Grewal and Ripple’s Stuart Alderoty, chiefs of legal at their companies, bashed the SEC for this, claiming it has always used that term to refer to tokens it deems securities.

Grewal noted, “That @SECGov absolutely “maintained” that tokens themselves are securities is clear from the long record of their regulation by enforcement campaign. Why mislead the Court?” Alderoty mentioned, “Think it’s time for @SECgov to admit it has become a twisted pretzel of contradictions.”

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