The Securities and Exchange Commission (SEC) on Monday filed a lawsuit against one of the biggest global crypto exchanges, Kraken. The agency is alleging that Kraken violates securities laws by running an unregistered online trading platform.
In response to the lawsuit, Kraken in a blog post said the SEC allegations are “hollow”. The exchange made reference to a hyperlinks to the SEC’s previous lawsuits against Ripple and Coinbase, saying that the regulator “famously argues that digital asset trading platforms like Kraken can simply ‘come in and register’ with the agency.”
“As most securities law experts know, there is not a single law on the books supporting this position,” Kraken added. “The allegation is hollow; there is no such thing as an exchange, broker dealer, or clearing agency for investment contracts. The SEC is demanding compliance with a regime that doesn’t exist.”
Kraken is the latest crypto exchange to come under the attack of the SEC. The agency already has Coinbase and Binance in court on similar allegations. Bittrex, another exchange that was sued, has since settled with the agency and ended its case.
The SEC charged Kraken’s parent firms with failing to register the offer and sale of their crypto asset staking-as-a-service program, as a result of which the parent entities settled the charges by paying $30 million in “disgorgement, prejudgment interest, and civil penalties.”
No Fraud Allegations
Also in the blog post, Kraken pointed out that the SEC’s lawsuit does not include any allegations of fraud. It further boasted that even if the allegations included this, they wouldn’t be true because the exchange isn’t guilty of any.
“The complaint against Kraken alleges no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty,” Kraken wrote.
“It includes big dollar amounts but does not allege a single one of those dollars is missing or misused – no ponzi scheme, no failure to maintain adequate reserves, and no failure to preserve the identity of client funds 1:1. Indeed, none of these things would be true.”
Kraken also said that the SEC’s argument that its products were investment contracts was “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.”
Meanwhile, the crypto industry has always argued that the SEC does not operate using real laws, as there are no rules guiding the crypto industry at the moment. Also commenting on the lawsuit on Twitter, chief policy officer of Coinbase, Faryar Shirzad, said the rule of law requires that the rulers apply actual laws.
“It’s been a long honored tradition — and a legal requirement — since America’s founding. It’s also a critical underpinning of the government ruling by the consent of the governed,” Shirzad stated.
Products Remain Unaffected
The announcement of the lawsuit may have induced panic among Kraken exchange users. Also in the blog, the exchange assured its users that its products and operations remain intact despite the lawsuit. Kraken stated that it remains “fully committed to our U.S. and global clients and partners.”
This is the fourth exchange that the SEC has taken to court on allegations of securities laws violations. However, the lawmakers are seeking to draft a separate regulatory legal framework for cryptocurrencies which will hopefully remove the industry from the SEC’s regulatory enforcement action.