As a seasoned analyst with over two decades of experience in the financial industry, I find myself intrigued by this ongoing battle between cryptocurrency exchanges and regulatory bodies like the SEC. The latest move by Kraken to request a jury trial in its lawsuit against the SEC is a bold step that could set a significant precedent for the crypto market.
Kraken, a digital currency trading platform, has escalated its legal dispute with the U.S. Securities and Exchange Commission (SEC) by asking for a jury trial in the SEC’s lawsuit. According to recent court documents, a judge in California previously decided that the SEC’s case against Kraken would move forward to trial, following a similar decision in lawsuits involving Binance and major U.S. exchange Coinbase Global Inc (NASDAQ: COIN).
The Top Exchanges Enforcement Action Trend
In June 2023, Binance and Coinbase found themselves facing a lawsuit from the regulatory body, due to allegations that they had breached federal securities laws. The Securities and Exchange Commission (SEC) stated that these companies neglected to register their platforms as brokerages, clearinghouses, or exchanges, which is necessary under law. Additionally, it was claimed that both firms deceived investors and regulatory bodies during the course of this lawsuit.
In November, the SEC (Securities and Exchange Commission) took a regulatory action against Kraken, alleging that they had combined as much as $33 billion in customer funds.
According to the Commission, the cryptocurrency exchange has made hundreds of millions of dollars by facilitating the buying and selling of digital asset securities for users since September 2018. However, it was also noted that Kraken did not comply with legal requirements by failing to register its broker, dealer, and clearing services with the SEC.
Kraken-supported digital assets such as Algorand (ALGO), Cardano (ADA), Decentraland (MANA), Solana (SOL), Filecoin (FIL), Cosmos (ATOM), Polygon (MATIC), OMG Network (OMG), and Near (NEAR) have been classified as securities.
Kraken Denies SEC’s Allegations
Contrary to some reports, such as those from Coindesk, Kraken denies any involvement in illegal activities on Thursday. The exchange has countered all accusations made by the SEC, and in addition, presented 18 other defense points. Kraken’s legal stance is grounded on its understanding that neither the Securities Act nor the Exchange Act encompass digital assets.
The trading platform claims that it didn’t need to register with the Commission because it doesn’t fall under the categories of an exchange, a broker-dealer, or a clearing agent as defined by the Exchange Act.
Kraken maintains that its regulatory responsibilities were beyond the scope of the Securities and Exchange Commission (SEC). Essentially, the SEC was unable to bring a case that could lead to remedy as they lacked the power to oversee Kraken.
In simpler terms, the exchange argued that the digital assets themselves do not function like traditional investments such as stocks or bonds, since they don’t come with the associated rights and duties, which are typically regulated by the Securities and Exchange Commission (SEC).
4 months ago, Kraken challenged the SEC’s interpretation of the Howey Test and sought the court’s dismissal of the case against them. In this challenge, Kraken’s legal representative, Matthew Solomon, countered the SEC’s stance that the exchange should be considered as a single “ecosystem,” where all tokens are grouped together as investment contracts.
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2024-09-13 12:15