The second-largest crypto exchange, Kraken, has sought to dismiss the SEC suit. Alleging that the regulator “threatened” with the lawsuit after the Congress testimony by its Chief Legal Officer, the exchange accused the agency of “retaliation, intimidation, and harassment.” Last year, the SEC filed charges against Payward Inc. and Payward Ventures Inc., collectively known as Kraken, charging them with operating their trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.
According to the new filing, instead of identifying securities, the complaint is bent on endorsing a theory that there can be an investment contract without any contract, post-sale obligations, or even any interaction between the issuer and the purchaser. The exchange argued that the SEC’s theory lacks a limiting principle and would equip them with unlimited authority through the entire chain of commerce, from collectibles to commodities.
U.S. crypto exchanges should not have to operate amid an onslaught of regulatory enforcement actions, while jurisdictions around the world continue advancing constructive regulatory rulemaking.
As reported by TronWeekly, the SEC’s complaint asserts that Kraken violated the registration provisions of the Securities Exchange Act of 1934. Subsequently, the crypto exchange agreed to halt the offering or selling of securities through crypto asset staking services and pay a $30 million civil penalty. Attorney Bill Morgan has weighed in on Kraken’s position that the SEC shows no relationship between issuers of tokens.
Kraken’s Use Of Ripple Case Is Not Desperate—Expert
Similar to Ripple’s programmatic sales, Kraken’s primary exchange platform trading is a blind bid/ask system that lacks a direct issuer-buyer relationship. In Ripple’s case, Judge Torres determined that these were not investment contracts, partly because there was no direct expectation of profits from Ripple’s efforts, and some of those Ripple programmatic sales happened on the Kraken exchange.
Drawing a parallel to Ripple’s case, Kraken argued that the trading of tokens like ALGO, ADA, and MATIC on its platform occurs through a blind bid/ask system, and since some of Ripple’s sales were executed on their exchange without being considered investment contracts, the tokens in question should not automatically be classified as securities.
Therefore, the use of the Ripple case as a persuasive precedent for, say, programmatic sales of ALGO not being investment contracts makes perfect legal sense.