Kraken seeks to dismiss SEC lawsuit, says claim was ‘retaliation’ for political remark

Kraken filed a motion Thursday to dismiss the Securities and Exchange Commission’s November lawsuit that accused the crypto exchange of multiple charges including operating without registration, failing to prevent known conflicts of interest and commingling client funds.

In addition to filing the motion, Kraken said in a blog post on Thursday that the SEC’s claim is flawed, as the agency argued that the crypto exchange operates an unlicensed platform for “investment contracts” without identifying any “contract” between Kraken users and token issuers.

“None of the assets in the SEC’s Complaint are investment contracts under the law,” the exchange said. “For eight decades, the U.S. Supreme Court and Ninth Circuit (where this case was filed) have always required that the SEC identify a contract when finding the existence of an investment contract.”

Kraken also claimed that crypto tokens do not qualify the Howey test, often used by U.S. authorities to define sales of securities as "investment contracts."

“The SEC’s theory is that there can be an investment contract with no contract, no post-sale obligations and no interaction at all between the issuer and the purchaser. No pooling, no common enterprise, no profits from a business,” the blog post said.

The company added that the SEC’s lawsuit did not accuse Kraken of any fraud or disservice to customers, questioning the basis of the legal claim. Allowing the SEC to continue with this claim will establish a “dangerous precedent for agency overreach,” Kraken said.

Politically driven?

In an X thread, Kraken CEO Dave Ripley claimed that the SEC’s accusations were politically motivated, pointing out how the agency said it will sue Kraken soon after the exchange testified about the SEC’s “overreach in crypto” at the House Financial Services Committee and the House Agriculture Committee in May last year.

“Crypto innovators in the United States should not have to fear retaliation for their political speech,” Ripley wrote in his X post. “U.S. crypto exchanges should not have to operate amid an onslaught of regulatory enforcement actions, while jurisdictions around the world continue advancing constructive regulatory rulemaking.”

SEC’s November lawsuit against Kraken came less than a year after the agency imposed a $30 million fine on the exchange for its crypto-staking business.

Kraken and the SEC did not immediately respond to The Block’s request for further comment.