Cryptocurrency exchange Kraken has filed a motion against the US Securities and Exchange Commission (SEC), citing an earlier case involving Ripple Labs.
Kraken said the lawsuit was politically motivated and would set a "dangerous precedent" for the agency's abuses.
On its page at X, a Kraken spokesperson outlined its arguments that the SEC has not established a direct link between token buyers and issuers. However, the SEC treats tokens as securities.
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Kraken filed a court motion Thursday asking the court to dismiss the SEC's November lawsuit, which accused the exchange of operating without registration, commingling client funds, and failing to eliminate known conflicts of interest.
In a blog post, Kraken explained why it believes the SEC's lawsuit is unreasonable. The regulator claims that Kraken operates on an unlicensed investment contract platform, with "the SEC never pointing to any contract between Kraken's clients and token issuers, so there can be no investment contract."
The exchange pointed out: "None of the assets in the SEC's complaint constitute an investment contract under the law. For eight decades, the US Supreme Court and the Ninth Circuit have consistently required the SEC to identify an investment contract when finding its existence."
Drawing an analogy to the Ripple case, Kraken pointed out that the exchange's trading mechanism, like Ripple's sales, operates on a bid-ask system and goes beyond investment contracts. This is supported by Judge Analisa Torres' ruling.
Kraken's position challenges the Commission's classification of tokens such as ALGO, ADA, and MATIC as securities. Similar to Ripple, Kraken argues that there is no direct relationship between issuers and purchasers of tokens, which is important in defining a security under US law.
Bill Morgan believes that it will be difficult for the SEC to reach a settlement in the Ripple case.
Kraken argues that the 11 tokens that the SEC classifies as securities do not meet the criteria for an investment contract, which would be a major hurdle for the SEC if the Ripple case is upheld without a successful appeal.
Kraken CEO Jesse Powell at X spoke out against the SEC's lawsuit, which he called retaliation for the exchange's testimony to Congress about SEC abuses. Kraken appeared before two House committees in May 2023, calling for a clear regulatory framework for digital assets and limits on the SEC's jurisdiction.
Kraken CEO Dave Ripley also told at X that the SEC's charges were politically motivated, and the agency sued Kraken after the exchange testified about SEC abuses.
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