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  • J Huang and M Bacina

Kraken wrestles SEC over regulatory waterline

Global crypto exchange Kraken has pushed back in litigation with the US Securities and Exchange Commission (SEC), which alleges Kraken operated an unregistered securities exchange, clearing agency, and broker.


has not identified any investment contracts that were (or could be) traded, brokered, or settled on Kraken.

Kraken also argues that the agency failed to satisfy elements of the Howey Test, a 1946 US Supreme Court case frequently cited by the SEC, to determine if an asset qualifies as an investment contract and, therefore, a security.


These issues are central to the SEC's case against Kraken, which is premised on Kraken operating a trading platform for securities.


Kraken's filing follows its motion to dismiss the SEC's lawsuit, which is now set for hearing 12 June. Kraken previously moved to dismiss the lawsuit in February, to which the SEC responded by way of filing in April.


Kraken has also sought to rely on the "major questions doctrine" in its most recent filing. The doctrine, which has been often cited by crypto firms, asserts that if an agency wants to decide on an issue that has major national significance, it has to be supported by "clear congressional authorisation".


In the April filing, the SEC asserted that it is not "assuming new powers":

To argue that the SEC is assuming new powers in doing so here suggests that new technologies are beyond the scope of traditional securities law. They are not... Congress does not need to enact bespoke laws for each new technology that emerges. 

Kraken is not alone in its woes with the SEC. Coinbase and Binance have both faced charges from the SEC, with the latter also being slapped with a US$4.3 billion dollar fine by the Department of Justice and Commodity and Futures Trading Commission, as well as a personal US$50 million dollar fine for its CEO, Changpeng Zhao. Zhao subsequently resigned his role and was sentenced to four months in prison over anti-money laundering violations.


Kraken issued a response to the SEC action in a blog, stating its unwavering commitment to provide its services:

We disagree [with the SEC's complaint against Kraken], and intend to vigorously defend our position in court. [The news] has no impact on the products we offer and we will continue to provide services to our clients without interruption.

Kraken also asserts SEC registration is impossible and there is no path to compliance.


The stage is now set for a hearing on Kraken’s motion in June. The outcome of this case will likely set important precedents on the SEC's regulatory perimeter and on future enforcement actions against other crypto exchanges.


Written by Jake Huang, Steven Pettigrove and Michael Bacina


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