Kraken Challenges SEC's Authority and Seeks Jury Trial Over Crypto Asset Disputes

By: Eva Baxter

Kraken has initiated a request for a jury trial in response to the United States Securities and Exchange Commission's (SEC) ongoing lawsuit against the crypto exchange, according to a court filing on September 12. This significant move came shortly after a federal judge dismissed Kraken's bid to have the case thrown out, a case primarily centered on accusations that Kraken operated an unregistered securities exchange.

Kraken's Defense

In its filing, Kraken denied any illegal activities and heavily criticized the SEC’s handling of the cryptocurrency industry. The exchange revealed its numerous attempts to engage constructively with the regulator, which it claims were repeatedly rebuffed. It stated, "Kraken has tried to work with the SEC to make registration feasible, but the industry’s efforts have been stonewalled at every step, as the SEC has instead chosen to pursue a strategy of fighting with its sister regulators for enforcement authority its Chair admitted it did not have."

Furthermore, Kraken claims it was left in the dark regarding which digital assets the SEC considered as "investment contracts" until the lawsuit was presented. The lawsuit labeled several digital assets traded on the platform, including ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL, as securities.

Kraken also disputed the use of the term "crypto asset securities" by the SEC, voicing that courts have previously rejected this classification. It stated, "The SEC has pointed to no transactions where investment contracts were allegedly formed on Kraken. The digital assets themselves cannot be the investment contracts because they carry none of the rights and obligations of a share of stock, a bond, or any other financial asset that Congress has said is subject to SEC regulation." Consequently, Kraken firmly denied any engagement in unlawful activities.

Challenges to SEC's Authority

Additionally, Kraken questioned the SEC’s authority to regulate its operations under specific sections of the Securities Exchange Act. The exchange argued that digital assets do not classify as securities or investment contracts and, hence, trading these assets on Kraken does not breach the Exchange Act.

Moreover, Kraken asserted that the SEC failed to provide adequate notification that its actions were illegal, infringing on the exchange’s due process rights. Its legal team elaborated, "Due to the lack of clarity and fair notice regarding Kraken’s obligations under the law, in addition to the lack of clarity and fair notice regarding Plaintiff’s interpretation of the law, Kraken lacked fair notice that its conduct was prohibited."

As the legal battle between Kraken and the SEC escalates, the crypto community is closely monitoring the developments, which could have significant implications for the regulation and future of digital assets trading platforms.