Kraken Decries ‘Expansive New Theory’ Behind SEC Lawsuit, Calls for Dismissal

Crypto exchange Kraken filed a motion in federal district court late Thursday, asking that the court dismiss the SEC’s case filed in November.

“The law is clear,” a Kraken spokesperson told Decrypt. “None of the assets in the SEC’s complaint constitute ‘investment contracts,’ and Kraken is not a securities exchange.”

The motion, filed in Northern California District Court, picks apart the SEC’s most recent claims—which came nine months after the agency and Kraken reached a settlement over prior allegations related to crypto staking.

”The SEC never alleges the contract that an ‘investment contract’ requires,” Kraken argues. ”An investment contract must include post-sale obligations running from issuer to purchaser, which are not alleged—[and] the SEC cannot otherwise satisfy any Howey element.

“There is no ‘investment of money,’ there is no ‘common enterprise,’ [and] there is no ‘reasonable expectation of profits’ from the efforts of others,” Kraken continues.

Kraken’s argument aligns with that of the the Crypto Freedom Alliance of Texas (CFAT), which yesterday filed a separate lawsuit against the SEC over its definition of regulated securities. CFAT raised the example of limited-edition designer sneakers from Nike, which are sought more hungrily by collectors than they are by people who might actually wear them.

“The SEC’s case rests on an expansive new theory that would effectively ‘securitize’ a broad range of ordinary assets and commodities,” the Kraken spokesperson said, saying the SEC is declaring that “any commercial artifact that can rise or fall in value could be an investment contract.”

Should the SEC’s broadened scope stand, the federal regulator would “commandeer expansive new authority over the U.S. economy just as Congress is debating how that authority should be allocated among federal agencies,” the Kraken spokesperson said.

Kraken is calling for the authority being sought by the SEC to be placed in the U.S. Congress.

This is a developing story and will be updated as details emerge.