Eight state attorneys general in the United States have united to challenge the Securities and Exchange Commission (SEC) in its lawsuit against cryptocurrency exchange Kraken, arguing that the SEC has exceeded its delegated authority.
Filed on Feb. 29 by officials from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, along with industry lobbyists, the brief contends that the SEC lacks the authority to regulate crypto assets as securities without an investment contract.
The attorneys general assert that the SEC’s attempt to regulate crypto assets without congressional delegation infringes upon state laws, particularly consumer protection statutes. They argue that categorizing crypto assets as securities absent an investment contract jeopardizes state-specific regulations tailored to non-securities products.
The joint filing maintains that the SEC’s enforcement action goes beyond its delegated powers and disregards protective measures embedded in state consumer protection laws. It warns against the dangerous precedent set by granting the SEC broad authority over crypto assets without proper congressional authorization.
In response to the SEC’s lawsuit, Kraken filed a motion on Feb. 22 seeking dismissal, citing similar concerns of regulatory overreach. The exchange contends that the SEC’s expansive interpretation lacks a limiting principle and grants the agency excessive authority over the crypto industry.
Kraken refutes the SEC’s allegations of operating as an unlicensed securities exchange, broker, dealer, and clearing agency. The exchange argues that the SEC’s characterization of crypto tokens as “investment contracts” lacks substantiation, as it fails to identify any contractual agreements between customers and the exchange.
The SEC’s lawsuit against Kraken, filed in November, accuses the exchange of operating unlawfully, commingling client funds, and neglecting conflicts of interest. Similar complaints have been lodged against other crypto firms, including Coinbase, Binance, and the U.S. branch of Bittrex, with ongoing cases against the first two.
Implications and Conclusion
The joint opposition by state attorneys general underscores the contentious debate surrounding the SEC’s regulatory authority over crypto assets. As legal battles unfold, the outcome will shape the regulatory landscape for cryptocurrencies and their classification under federal and state laws.
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