March 28, 2024
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Eight State Attorneys General Challenge SEC’s Authority in Kraken Lawsuit

In a collective move, attorneys general from eight U.S. states have united to challenge the Securities and Exchange Commission’s (SEC) authority in the legal battle against the cryptocurrency exchange Kraken. Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas filed a joint amicus brief on February 29, asserting that the SEC has exceeded its delegated power.

The state officials clarified that their stance doesn’t align with either party but opposes the SEC’s attempt to regulate crypto assets without a clear investment contract, contending that Congress hasn’t granted such authority. They argue that categorizing crypto assets as securities without an investment contract broadens the SEC’s reach and endangers state consumers by potentially breaching state laws, including vital consumer protection regulations.

“The SEC’s exercise of this undelegated authority puts state consumers at risk by preempting state statutes better tailored to the specific risks of non-securities products,” the brief stated, highlighting concerns about overreach and the potential conflict with state-level protections.

Kraken, which is facing SEC allegations of operating without registration, commingling client funds, and neglecting conflict of interest prevention, filed a motion on February 22 to dismiss the lawsuit. The exchange claims the SEC’s actions set a “dangerous precedent” and argues that granting such broad authority to the regulator lacks a “limiting principle.”

In a blog post on the same day, Kraken contested the SEC’s assertion that it operates as an unlicensed securities exchange, broker, dealer, and clearing agency. The exchange refuted the characterization of crypto tokens as “investment contracts” and challenged the SEC to produce evidence of actual contracts between customers and the exchange.

This legal confrontation mirrors similar actions taken against other crypto-related firms, including Coinbase, Binance, and the U.S. branch of Bittrex. With ongoing cases against Binance and Coinbase, the collective pushback from state attorneys general adds a new dimension to the evolving landscape of crypto regulation in the United States.

Image by freepik

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