Kraken has filed to dismiss a lawsuit it faces from the Securities and Exchange Commission, court documents show.
The crypto exchange filed its petition in the Northern District of California Thursday to dismiss a lawsuit, filed in November, alleging that Kraken operates an unlicensed securities exchange and has allegedly commingled billions in customer and company funds.
“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,” Thursday’s motion said. “All these claims rest on the SEC’s flawed premise that certain digital assets were ‘traded as investment contracts’ on Kraken’s platform.”
The commission alleges that, as determined by the Howey test — a test arising from the Supreme Court that looked at investment contracts subject to securities law — crypto is an investment contract because it meets four criteria: it involves the investment of money in a common enterprise with an expectation of profits resultant of the efforts of others.
Kraken’s motion to dismiss the SEC suit follows the same path as Coinbase and Binance, which are also trying to dismiss SEC suits against them.
Coinbase attorney William Savitt in January argued against classifying crypto as securities by framing digital assets as akin to Beanie Babies — more like collectibles than like stakes in a company.
“It’s the difference between buying Beanie Babies Inc. and buying Beanie Babies,” Savitt said, according to The Guardian.
Beanie babies, in Coinbase’s argument, are replaced by diamonds and comic books.
“The SEC fails to plausibly allege that any digital asset was a security when traded on Kraken, specifically, a kind of security called an ‘investment contract.’ An investment contract is not simply an investment. Diamonds can be an investment. A classic car can be an investment. Comic books, baseball cards, or Star Wars memorabilia can be investments,” the motion said. “As the Exchange Act makes clear, an ‘investment contract’ requires a contract. In every Supreme Court and Ninth Circuit decision finding an ‘investment contract,’ there is a contract.”
Kraken is also seeking to invoke the major questions doctrine as grounds for dismissal — something both Coinbase and Binance sought to invoke in their respective cases — which states that Congress does not delegate to government agencies issues of major political or economic significance.
“The SEC’s attempted jurisdictional grab over the trillion-dollar digital asset industry – with potential application to all corners of the commercial marketplace and the broader commodities markets ... raises serious questions about abuse of power. [The major questions doctrine] is designed to prevent agencies from ‘discovering’ broad regulatory power without a clear delegation from Congress – which is exactly what the SEC is doing here,” the firm wrote in a blog post Thursday.
An SEC spokesperson declined to comment beyond the commission’s public filings on the Kraken case.
