Oral Arguments Begin, Here’s What You Need to Know
Kraken‘s motion to dismiss the lawsuit filed by the U.S. Securities and Exchange Commission (SEC) is scheduled for oral argument today at 1pm ET/10am PT.
The SEC accuses kraken of being an unregistered exchange and broker-dealer and maintains that 11 tokens (SOL, ADA and ALGO) are securities.
Kraken and SEC Oral Arguments Begin
While the SEC accused Kraken of operating an unregistered securities exchange, Kraken was also accused of operating as an unregistered broker-dealer and also operating as an unregistered securities clearing house. The SEC stated that 11 tokens listed on Kraken are securities, including ADA, ALGO, ATOM, FIL, flow, ICP, MANA, MATIC, near, OMG and SOL. Kraken’s motion to dismiss is based on the Howey Test, which states that the SEC does not allege that any securities transactions occurred on the exchange.
Kraken had filed a response to the SEC lawsuit, arguing that the agency’s case was weak and the case should be dismissed. In its latest response, Kraken strongly denies the SEC’s allegations that it traded unregistered securities.
The exchange, therefore, said that the SEC did not properly define exchange-traded investment contracts and objected to some of the terms used by the SEC, such as ‘investment concept’ and ‘ecosystem’, saying that these were necessary. ‘investment contract’ and ‘operation’ respectively.
Similarly, Kraken received support for its impeachment request from Senator Cynthia Lummis, the Blockchain Association, the DeFi Education Fund, the Chamber of Digital Commerce, the Investor Choice Lawyers Network, Paradigm, and two administrative law experts. These organizations submitted briefings supporting Kraken’s position.
Comparison with Coinbase Status
The legal community is waiting to see whether the SEC will use the same argument Coinbase presented in the Kraken case to deny the hearing. In this case, the SEC claimed that token ecosystems ensured their classification as securities by subjecting them to the Howey Test. The SEC will review this argument to determine whether this is still valid in the current situation.
Additionally, Kraken relies on SEC cases regarding initial offering coins (ICOs) to support its argument. The crypto exchange states that these cases concern contractual rights and obligations, which is consistent with Kraken’s view on investment contracts.
Coinbase’s Chief Legal Officer Paul Grewal had previously accused the SEC of presenting contradictory arguments. In a similar case against Coinbase, the SEC once again claimed that most of the tokens supported were investment contracts using the Howey Test. According to Coinbase, mixed signals and uneven enforcement actions from the SEC have led to regulatory uncertainty in the digital asset market.
BTC and ETH Commodity Status
The SEC has assigned commodity status to Bitcoin (BTC) and Ethereum (ETH) through the approval of spot ETFs, but SEC Chairman Gary Gensler has not publicly disclosed ETH’s status.
Bitcoin and Ethereum are arguably the two largest “ecosystems” behind them, which raises questions about why other tokens with significant ecosystems are classified differently.
The crypto community and legal experts will be following today’s discussions closely to understand how the SEC’s stance on what constitutes security may evolve. This case, along with the Coinbase case, could set important precedents for the regulatory environment of digital assets in the United States.
Also Read: Kraken Disputes SEC Claims, Cites Previous ICO Cases for Support
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Kelvin is a distinguished author specializing in crypto and finance, with a bachelor’s degree in Actuarial Science. Known for her sharp analysis and insightful content, she is fluent in English and specializes in comprehensive research and on-time delivery.
The content presented may contain the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrencies. Neither the author nor the publication accepts any liability for your personal financial loss.
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