Oral arguments between the Kraken vs. SEC case commence over claims of running as an unregistered exchange and broker-dealer.
Oral arguments regarding Kraken’s motion to dismiss the case initiated by the U.S. Securities and Exchange Commission (SEC) are scheduled for 1 PM ET/10 AM PT today.
The SEC accuses Kraken of operating as an unregistered exchange and broker-dealer and maintains that 11 tokens, including SOL, ADA, and ALGO, are securities.
The Kraken v. SEC oral arguments have commenced
Kraken has been accused by the Securities and Exchange Commission (SEC) of operating an unregistered securities exchange and an unregistered broker-dealer and securities clearing agency. The Securities and Exchange Commission (SEC) declared that 11 tokens listed on Kraken, including ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL, are securities. Kraken’s dismissal petition is predicated on the Howey Test, which asserts that the SEC has not made any allegations regarding securities transactions on its exchange.
Kraken had submitted a response to the SEC litigation, contending that the agency’s case is inadequate and that the lawsuit should be dismissed. In its most recent response, Kraken has vigorously denied the SEC’s allegations that it traded unregistered securities.
Consequently, the exchange stated that the SEC needed to identify the tradeable investment contracts on the exchange accurately. The exchange also criticized the SEC’s use of terms, including “investment concept” and “ecosystem,” arguing that they should have been renamed “investment contract” and “enterprise,” respectively.
Additionally, Senator Cynthia Lummis, the Blockchain Association, the DeFi Education Fund, the Chamber of Digital Commerce, the Investor Choice Advocates Network, Paradigm, and two administrative law scholars have all expressed their support for Kraken’s motion to dismiss. These organizations have submitted briefs in favor of Kraken’s stance.
Comparison to the Coinbase case
The legal community is anticipating that the SEC will apply the same arguments in Kraken’s case as in the Coinbase motion to dismiss the hearing. In that instance, the SEC asserts that the ecosystems of tokens qualify them for classification as securities under the Howey Test. The SEC will scrutinize this argument to ascertain whether it remains relevant in the present context.
Additionally, Kraken bases its argument on the SEC’s cases regarding initial coin offerings (ICOs). The crypto exchange observes that these cases pertain to contractual rights and obligations based on Kraken’s perspective on investment contracts.
Paul Grewal, the Chief Legal Officer of Coinbase, has previously accused the Securities and Exchange Commission (SEC) of presenting contradictory arguments. The SEC continued to assert that most of the supported tokens are investment contracts in a comparable case against Coinbase, employing the Howey Test. The digital asset market has been plagued by legal ambiguity due to the SEC’s inconsistent enforcement actions and muddled signals, as per Coinbase.
Commodity Status of Bitcoin and Ethereum
Even though SEC Chair Gary Gensler has yet to address Ethereum’s status publicly, the SEC has granted commodity status to Bitcoin (BTC) and Ethereum (ETH) through the approval of spot ETFs.
There are concerns regarding the classification of other tokens with substantial ecosystems, as Bitcoin and Ethereum have arguably the two most prominent “ecosystems” behind them.
The SEC’s posture on what constitutes security may evolve, and the crypto community and legal experts will closely monitor today’s arguments. This case, in conjunction with the Coinbase litigation, has the potential to establish substantial precedents for the regulatory environment of digital assets in the United States.
