Eight U.S. Attorneys General have co-authored a critique asserting the Securities and Exchange Commission (SEC) has exceeded its regulatory jurisdiction in its legal action against the crypto exchange Kraken. This challenge, voiced on February 29, saw officials from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas join forces with industry advocates to make their case.
Dispute Over SEC’s Regulatory Scope
These state officials are not supporting any specific party but instead are challenging the SEC’s authority to govern cryptocurrency assets that do not involve an investment contract, arguing that Congress has not granted the SEC this level of power. They posit that the SEC’s broad interpretation of investment contracts could infringe on state laws, including those meant to protect consumers, and potentially override state regulatory frameworks better equipped for non-security financial products.
They emphasize the risks posed by the SEC’s overreach to consumer protection at the state level, suggesting that federal enforcement could undermine state-specific safeguards. The stance follows Kraken’s own request on February 22 for the outright dismissal of the SEC’s case, which echoed concerns about the regulatory overextension.
Kraken’s Defense Against SEC Allegations
Kraken has contended that the SEC’s principles are not well-defined and that a favorable ruling for the SEC would endow the agency with excessive regulatory sway. The crypto exchange has suggested that the SEC is claiming too much control over the industry.
Moreover, Kraken discredits the SEC’s allegations that it operates as an unlicensed securities exchange, broker, dealer, and clearing agency. The company argues that the SEC’s claims are unfounded since they do not identify any explicit contracts between Kraken and its customers that would qualify the digital assets as investment contracts. This ongoing tension is part of a larger narrative, with the SEC also targeting other crypto entities like Coinbase, Binance, and Bittrex’s U.S. arm for similar regulatory transgressions.