Kraken, one of the largest cryptocurrency exchanges, has responded to accusations from the United States Securities and Exchange Commission (SEC) that it violated federal securities laws. The SEC alleges that several digital assets offered by Kraken should be classified as unregistered securities. In a firm defense, Kraken disputes the claims, asserting that the digital assets in question do not meet the legal standards to be considered securities under U.S. law.
Kraken Defends Cryptocurrencies Like ADA, ALGO, and ATOM
Kraken’s response focuses on popular cryptocurrencies, including Cardano (ADA), Algorand (ALGO), and Cosmos (ATOM). The exchange contends that these digital assets—and others like Filecoin (FIL), Flow (FLOW), and Solana (SOL)—do not qualify as investment contracts under U.S. law. Therefore, they should not be regulated by the SEC. Kraken’s legal filing explicitly states: “Kraken did not violate Sections 5, 15(a), and 17A of the Securities Exchange Act of 1934 because ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL are not securities or investment contracts.”
To bolster its argument, Kraken referenced the well-known Supreme Court ruling in SEC v. W.J. Howey Co., which established the “Howey test” as the framework for determining whether an asset constitutes an investment contract. According to Kraken, the SEC has not demonstrated that the digital assets in question satisfy the criteria of the Howey test, and thus, they do not fall under the regulatory purview of the SEC.
SEC’s Regulatory Approach Criticized
Kraken also strongly criticized the SEC’s approach to regulating the cryptocurrency industry, accusing the agency of overstepping its authority. The exchange argued that the SEC has no jurisdiction over its digital asset trading platform because the assets in question are not securities. Kraken further stated that the SEC’s regulatory stance is unclear, adding that the company lacked “fair notice” regarding its legal obligations in relation to these digital assets.
This sentiment mirrors criticism from other major players in the cryptocurrency industry. Ripple’s legal counsel, Stuart Alderoty, has previously slammed the SEC’s inconsistent interpretation of crypto asset securities, while Coinbase’s chief legal officer, Paul Grewal, has highlighted contradictions in the regulator’s claims—particularly in the high-profile SEC case against Ripple involving XRP.
Broader Pushback Against the SEC
Kraken’s legal battle comes amid growing opposition to the SEC’s handling of cryptocurrency regulation. A coalition of seven U.S. states, led by Iowa Attorney General Brenna Bird, recently filed an amicus brief challenging the SEC’s authority in this space. The states argue that the agency’s attempts to regulate cryptocurrencies constitute an overreach, describing it as a “power grab” that would stifle innovation, harm the industry, and exceed the SEC’s legal authority.
Kraken’s Legal Challenges Beyond the U.S.
In addition to its battle with the SEC, Kraken recently faced a legal setback in Australia. Last month, the Federal Court of Australia ruled against Bit Trade, a subsidiary of Kraken’s parent company, Payward Incorporated. The court found that Bit Trade had breached section s994B(2) of the country’s Corporations Act since October 2021. Kraken acquired Bit Trade in 2020 as part of its expansion strategy to offer digital asset services in Australia.
As Kraken continues to navigate regulatory challenges both in the U.S. and internationally, its case against the SEC highlights the broader uncertainty around the legal classification of digital assets and the evolving regulatory landscape for cryptocurrencies.
