SEC trying to dismiss three Kraken defenses in lawsuit

The U.S. Securities and Exchange Commission is urging a federal court to dismiss three defenses presented by cryptocurrency exchange Kraken in an ongoing lawsuit concerning alleged securities violations.

The SEC’s motion, filed on November 5, challenges Kraken’s assertion that there is insufficient legal clarity on which digital assets qualify as securities.

The SEC originally sued Kraken in November 2023, accusing the exchange of operating as an unregistered securities exchange, broker, and clearing agency.

According to the SEC, Kraken’s platform facilitated the trading of cryptocurrency securities without proper registration, generating significant revenue for the exchange.

Kraken sought to dismiss the lawsuit in August, but the court ruled in favor of the SEC, allowing the case to proceed.

SEC’s dismissal of three defenses

In response to Kraken’s latest defenses, the SEC argued that Kraken’s invocation of the “major questions doctrine” should be dismissed. The major questions doctrine posits that regulatory agencies require clear congressional authorization for significant regulatory actions.

Kraken’s defense claims the SEC lacks explicit authority to regulate digital assets as securities and that the term “investment contract”—used to determine if an asset qualifies as a security—lacks sufficient clarity in this context.

The SEC rejected these claims, maintaining that existing securities laws are not vague and that Kraken had fair notice of what constitutes a securities violation.

The SEC also challenged Kraken’s inadequate notice defense, which asserts that the exchange was not properly informed that its operations breached securities laws. The commission labeled this defense legally flawed, arguing that it only serves to extend the case by necessitating extensive evidence unrelated to the primary issues.

In its filing, the SEC warned that accepting Kraken’s defenses could lead to excessive and “irrelevant” document requests, complicating and delaying the legal process. The commission argued that dismissing these defenses would streamline the case and prevent the unnecessary expenditure of judicial resources.