Crypto Exchange Kraken Files to Dismiss SEC Lawsuit Against It

The U.S. Securities and Exchange Commission didn’t allege fraud and stretched the definition of a contract in its lawsuit against Kraken, the exchange said in a motion to dismiss the case Thursday.

The crypto company moved to kick out the SEC’s lawsuit, filed in the Northern District of California, arguing that cryptocurrencies – at least, those listed in the SEC’s complaint – should be treated like commodities and not securities.

The SEC sued Kraken last November, alleging it did not register as a broker, clearinghouse or exchange and saying the company commingled customer and corporate funds, months after settling charges over Kraken’s former staking service.

“The SEC does not allege fraud. The SEC does not allege consumer harm. The SEC’s sole claims are that Kraken has somehow operated in plain sight for almost a decade as an unregistered securities exchange, broker-dealer, and clearing agency, in violation of the Exchange Act,” the motion said.

Kraken’s motion draws on other arguments made in ongoing cases, saying comic books or baseball cards can be investments but are not investment contracts. The SEC did not “plausibly allege” any of the cryptocurrencies listed in its complaint are securities or investment contracts, according to the motion.

As part of its argument, Kraken said the SEC did not meet the requirements set out by the Howey Test, a Supreme Court precedent used as a benchmark for identifying securities.

“The SEC tries to end-run the absence of any purchaser-issuer relationship creating a reasonable expectation of profits based on the efforts of the issuer. It attempts to do so by alleging that the issuers made ongoing public statements advertising their tokens and improvements of the underlying technology platforms, which Kraken customers allegedly relied on for an expectation of profits based on their efforts,” Kraken said.

It also likened the cryptocurrencies listed in the SEC’s complaint to bitcoin and ether, two digital assets that currently have derivatives products trading.

In a blog post, Kraken also said the SEC is overstepping its jurisdiction, arguing in the filing that there is a Major Questions Doctrine issue.

Kraken did not address allegations by the SEC that it commingled customer and corporate funds. In its complaint, the SEC used the alleged commingling as an example of conduct that wouldn’t be allowed for registered entities.