State AGs Join Kraken in Crypto Lawsuit Against SEC

State attorneys general join Kraken in cryptocurrency lawsuit against SEC

A group of state attorneys general have filed a joint amicus brief in support of Kraken, a crypto exchange that is facing a lawsuit from the U.S. Securities and Exchange Commission (SEC).

The SEC sued Kraken in October 2023, alleging that the exchange violated federal securities laws by offering and selling digital assets that were unregistered securities. The SEC also accused Kraken of commingling customer and corporate funds and failing to register as a broker-dealer, an exchange, or a clearing agency.

Kraken has denied the SEC's allegations and filed a motion to dismiss the case, arguing that the SEC lacked jurisdiction and authority over its activities, and that the digital assets it offered were not securities.

The state attorneys general from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas have sided with Kraken, claiming that the SEC's lawsuit is an attempt to regulate crypto assets as securities, which would infringe on the states' rights and consumer protection laws.

The state AGs argued that the SEC's suit could harm consumers by potentially preempting state statutes that are better tailored to the specific risks of non-securities products. They also asserted that the SEC was expanding the definition of an investment contract, a term that determines whether an asset is a security or not, and that cryptocurrencies are not automatically securities.

The state AGs cited previous state cases that have helped clarify the definition of investment contracts and urged the court to apply the same standards to crypto assets. They also pointed out that some states have enacted laws or regulations that specifically address crypto assets, and that the SEC's suit could undermine those efforts.

The state AGs' brief was one of several amicus briefs filed in the case by various industry groups and stakeholders, such as the Chamber of Digital Commerce, the Blockchain Association, the DeFi Education Fund, and U.S. Senator Cynthia Lummis. These briefs expressed similar concerns about the SEC's regulatory overreach and its impact on innovation and competition in the crypto space.

The case is one of several lawsuits that the SEC has brought against crypto exchanges and platforms, such as Coinbase, Binance, and Bittrex, in recent years. The outcome of the case could have significant implications for the future of crypto regulation in the U.S. and beyond.