SEC Pushes to Dismiss Key Kraken Defenses in Crypto Regulation Case

• SEC challenges Kraken’s claims of unclear crypto regulations in court, seeking to dismiss key defenses.
• Court denies Kraken’s major questions defense, supporting SEC’s view on securities law applicability.
• SEC seeks to limit discovery scope in Kraken case to streamline proceedings and conserve resources.

The U.S. Securities and Exchange Commission has turned up the heat on cryptocurrency exchange Kraken. On Nov. 5, the SEC filed a motion to dismiss three of Kraken’s major defenses against allegations of working without proper registration. The SEC is attempting to strengthen its hand in enforcing securities laws in the cryptocurrency industry with this move.

SEC Challenges Kraken’s Defense

Kraken claims that there were unclear regulatory expectations, but the SEC contends that claim has no legal basis. Kraken has argued it is defending itself because U.S. securities laws are not clearly applicable to digital assets.

In addition the company alleges it was not adequately warned by the SEC when evident rules violations were occurring. However, the SEC maintains that existing laws already lay out with sufficient clarity what kind of ‘investment contract’ an entity offering digital assets on its platform must be.

Furthermore, the SEC requested that the court reject Kraken’s “major questions doctrine” defense. This doctrine suggests that regulatory agencies should not expand their authority without explicit approval from Congress. The SEC maintains that established securities laws cover digital assets without requiring further congressional action.

Background of the Legal Action

In November 2023, the SEC filed its lawsuit against Kraken. The company has operated as an unregistered securities exchange from at least 2018, the complaint alleges. Kraken allegedly allowed hundreds of millions of dollars worth of transactions without proper oversight and the SEC alleges that the company owes unfair profits. In August, the court refused to dismiss the case, rejecting Kraken’s argument in its defense that it was relying on the major questions doctrine.

SEC Seeks to Limit Case Scope

In its latest filing, the SEC asked the court to limit the scope of discovery in the case. This request aims to prevent Kraken from gathering excessive and irrelevant information in support of dismissed defenses. The SEC argues that reducing the scope of discovery will streamline the legal process, conserving judicial and party resources.

This latest SEC action underscores its ongoing commitment to enforcing securities laws within the crypto industry, an approach that remains a subject of intense debate.