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Attorneys General from eight states in the United States have prepared a joint report arguing that the Securities and Exchange Commission (SEC) has overstepped its authority in its lawsuit against cryptocurrency exchange Kraken. The report was presented on February 29 by officials from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, along with other participants including industry lobbyists.
Notable Report from the SEC
According to the filing, state officials did not support any party but instead opposed the SEC’s regulation of crypto assets without an investment contract, as Congress has not delegated this authority to the SEC. The Attorneys General argued that the SEC has expanded the definition of what is considered an investment contract and that states are in a position to prevent the possible encroachment of state laws, including consumer protection laws that could be violated by the SEC’s attempt to regulate crypto assets as securities. They stated the following:
“The Court should refuse to categorize crypto assets as securities without an investment contract. The SEC’s use of this undelegated authority could obstruct state statutes better suited to the specific risks of non-security products, putting state consumers at risk.”
In summary, the report stated that the SEC’s enforcement action exceeds its delegated powers and that some state laws provide more protection to consumers than federal securities laws. This came after Kraken‘s petition filed on February 22, requesting the complete dismissal of the case against the SEC, citing similar concerns of setting a dangerous precedent by overstepping regulatory powers.
What’s Happening Between Kraken and the SEC?
Kraken argued that the SEC does not have a restrictive principle and that a ruling in favor of the SEC in this case would grant the agency overly broad authority. Kraken also stated that the crypto exchange has given the agency too much power.
On the same day, the cryptocurrency exchange published a blog post stating that the SEC’s claim that Kraken operates an unlicensed securities exchange, broker, dealer, and clearing agency is flawed and names crypto assets as investment contracts without pointing to any actual contract between customers and the exchange.
In November, the SEC claimed in its lawsuit against Kraken that the exchange operated unregistered, commingled customer funds, and failed to prevent conflicts of interest. The SEC has also made similar complaints against other crypto-related firms such as Coinbase, Binance, and the US branch of Bittrex.
