Kraken Pursues Jury Trial to Challenge SEC Allegations of Running Unregistered Securities Exchange

SUMMARY

Kraken has denied the SEC’s allegations of operating an unregistered securities exchange and is demanding a jury trial to defend its case.
The crypto exchange argues that the SEC’s terminology is vague and that digital assets should not be classified as financial securities.

Kraken has once again denied the U.S. Securities and Exchange Commission’s (SEC) allegations and is presently requesting a jury trial to defend itself, according to a court filing from Thursday. The SEC initially charged Payward Inc. and Payward Ventures Inc., the companies behind Kraken, in November 2023, charging the platform of operating as an unregistered securities exchange, broker, dealer, and clearing agency. The regulator particularly named tokens like SOL, ADA, ALGO, Atom, FIL, Flow, ICP, MANA, MATIC, Near, and OMG as unregistered securities in the case.

Kraken had at first moved to dismiss the lawsuit, but this motion was denied by a U.S. district court in August. Comparable charges have been made by the SEC in its lawsuits against other major platforms such as Binance and Coinbase. Despite these legal challenges, Kraken emphasized in its filing that it has made efforts to cooperate with the SEC in making registration possible. However, the exchange claimed that the industry’s endeavors have been consistently blocked by the SEC, accusing the regulator of battling for enforcement authority that its chair previously admitted it did not possess.

Kraken has moreover criticized the SEC for failing to clarify which particular transactions on the platform constitute investment contracts. The exchange contended that digital resources ought to not be classified as financial securities since they do not come with the rights and obligations typically related to stocks, bonds, or other financial instruments.

A key point of dispute in the lawsuit is the terminology utilized by the SEC. Kraken has challenged terms like “crypto asset securities,” “Kraken-traded securities,” “proprietary assets,” and “investors,” contending that these terms are vague and lack clear definitions. This criticism is commonly resounded across the crypto industry, with numerous firms claiming that the SEC uses vague language to justify securities violation charges without giving specific guidance.

In reaction to Kraken’s objections, while the SEC has not specifically addressed the filing, it did clarify its position in its amended complaint against Binance. The SEC noted that the term “crypto asset securities” does not refer to the crypto resources themselves and expressed regret for any perplexity caused by the terminology.

Ripple’s chief legal officer, Stuart Alderoty, weighed in on the situation, commenting on X that it may be time for the SEC to admit it has become “a twisted pretzel of contradictions.”

Kraken’s call for a jury trial signals a noteworthy move in its fight against the SEC, raising questions about the future of regulatory clarity in the crypto industry.