Kraken vs. SEC Lawsuit Update: Chamber of Digital Commerce Backs Kraken, Submits Amicus Brief Opposing SEC Overreach
The Chamber of Digital Commerce (CDC) has joined the legal battle between Kraken, a crypto exchange, and the U.S. Securities and Exchange Commission (SEC). The CDC has filed an amicus curiae brief in support of Kraken, which could have a significant impact on the future of the digital asset industry.
CDC’s Objectives Against the SEC’s Approach
Established in 2014, three years after Kraken’s inception, the Chamber of Digital Commerce is the largest trade association for digital assets and blockchain. It has submitted an amicus brief in the SEC v. Kraken case.
The CDC’s main argument is against the SEC’s regulatory overreach and its attempt to broaden the application of securities laws to cover all digital asset transactions. It believes that this approach is legally flawed and poses a threat to the adoption and advancement of blockchain technology.
Arguments Presented by the CDC
In its amicus brief, filed on February 27th, the CDC argues, “The SEC’s insistence on regulating all digital asset transactions as securities transactions is legally incorrect and hampers the adoption and advancement of blockchain technology. Digital assets are not inherently ‘investment contracts,’ as the SEC claims.”
The CDC presents several persuasive arguments against the SEC’s approach. One key argument is that the SEC misconstrues the subject of an investment contract as being synonymous with the investment contract itself. The CDC asserts, “Digital assets are merely lines of computer code that provide functionality on specific blockchain networks. They are not securities.”
The CDC cites legal precedents to support its position, stating, “Other courts have recognized that digital tokens are not inherently securities.” It cites cases such as SEC v. Ripple Labs, Inc., and SEC v. Telegram Group Inc., where U.S. courts have clarified that the nature of digital tokens must be evaluated on a case-by-case basis, and the mere existence of a digital asset does not automatically classify it as a security.
Additionally, the CDC challenges the SEC’s regulation-by-enforcement approach, raising concerns about separation of powers and due process. The brief argues that clear regulations are crucial for the rapidly evolving blockchain and digital asset industry, emphasizing the need for Congress to provide statutory clarity instead of relying solely on the SEC’s enforcement actions.
Kraken’s Legal Battle and the CDC’s Support
The SEC initially sued Kraken in November 2023, alleging that it operated an unregistered securities exchange, engaged in broker-dealer activities, and committed other regulatory violations. Kraken has consistently denied these charges and filed a motion to dismiss, arguing that the allegations primarily stem from a failure to register rather than fraudulent activities.
This case is separate from Kraken’s previous settlement with the SEC regarding its staking services. In that settlement, Kraken agreed to pay $30 million and ceased offering those services in the U.S. as of February 2023.
Similar SEC cases against other major crypto exchanges, such as Coinbase and Binance, are also ongoing. These cases, initiated in June 2023, are part of the SEC’s broader efforts to establish regulatory authority in the digital asset space, treating digital assets as “investment contracts.”
Tags: Crypto Regulations