Kraken Responds to SEC Allegations, Says that SEC Demands Compliance with Regime that “Does Not Exist”

The US Securities and Exchange Commission (SEC) filed a complaint alleging that Kraken operates as “an unregistered securities exchange, broker, and clearing house.”

Kraken says they disagree and intend “to vigorously defend their position in court.”

The news has no impact “on the products they offer, and they will continue to provide services to clients without interruption.”

Kraken remains fully committed “to U.S. and global clients and partners.”

As noted in a blog post, the complaint against Kraken alleges “no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty. It includes big dollar amounts but does not allege a single one of those dollars is missing or misused – no ponzi scheme, no failure to maintain adequate reserves, and no failure to preserve the identity of client funds 1:1. Indeed, none of these things would be true.”

Instead, the complaint makes “a technical argument: that Kraken’s business requires special securities licenses to operate because the digital assets we support are really “investment contracts.” This is incorrect as “a matter of law, false as a matter of fact, and disastrous as a matter of policy.”

Kraken disagrees with the SEC, and the law is on our side

The SEC already tried this theory and “a court rejected it outright.”

The SEC argued in that case “that digital assets bought and sold on trading platforms were really securities transactions.”

The Federal Court for the Southern District of New York disagreed, “ruling that the SEC failed entirely to satisfy the relevant legal test.”

The court held that the SEC’s unprecedented legal theory was contrary to the “economic reality” of such transactions. The SEC’s case against Kraken will “fail, too, and for the same reasons.”

The SEC alleges that Kraken “commingled” its own funds “with its clients’.”

This is a similar allegation already “made of other crypto trading platforms.”

The SEC cannot and does “not allege that any customer funds are missing or any loss has occurred. Nor does it allege that any loss will occur.”

The complaint itself concedes that this so-called “commingling” is “no more than Kraken spending fees it has already earned.”

The SEC famously argues “that digital asset trading platforms like Kraken” can simply “come in and register” with the agency.

As most securities law experts know, there is “not a single law on the books supporting this position.”

The SEC has promulgated “no rule describing how an order in a digital asset should be matched, no guidance on how a trade should be cleared, and articulated no standards for how to broker a digital asset transaction.”

According to Kraken, the allegation “is hollow; there is no such thing as an exchange, broker-dealer, or clearing agency for investment contracts.”

The SEC is demanding compliance “with a regime that doesn’t exist.”

Congress is advancing bipartisan legislation.

Meanwhile, groups of lawmakers from both sides of the aisle have questioned what they call SEC’s “regulation via enforcement” approach.

They have asked why the agency’s actions against crypto firms seem less focused on “compliance and customer protection” but were instead “calculated for maximum publicity and political impact.” Others have observed that the SEC’s strategy “does not protect the public.” Indeed, this suit does nothing to protect the public. Like those in complaints that have come before, its allegations “are factually incorrect, contrary to law, and the wrong way to create policy in the United States.”

Kraken further noted:

“While some critics may argue that digital asset trading platforms simply do not want to be regulated, that is not our position. In fact, Kraken has operated for more than a decade and holds registrations, licenses, authorizations and approvals around the world, including in the United States, United Kingdom, European Union, and Canada, among other developed and emerging markets. We have consistently advocated for practical, effective rules for digital assets. Our testimony to Congress in May of this year emphasized Kraken’s commitment to strong, harmonized consumer protections and anti-money laundering practices in the U.S.”

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