U.S. states challenge SEC’s crypto authority in Kraken case
In a significant challenge to the U.S. Securities and Exchange Commission’s (SEC) authority over cryptocurrency regulation, eight state attorneys general have filed an amicus brief supporting the crypto exchange Kraken. The brief, submitted on February 29, contends that the SEC has exceeded its delegated powers by attempting to regulate crypto assets as securities without clear congressional authorization. The states involved are Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, alongside industry lobbyists and the Chamber of Digital Commerce.
The states argue that the SEC’s actions could preempt state consumer protection laws, which may offer greater safeguards than federal securities laws. This move follows Kraken’s own motion to dismiss the SEC’s lawsuit, filed on February 22, which claims the regulator is setting a dangerous precedent for overreach. The Chamber of Digital Commerce, a leading blockchain and digital asset trade association, has also expressed support for Kraken, warning that the SEC’s lawsuit threatens the growth of the trillion-dollar blockchain community.
The joint amicus brief emphasizes that the SEC’s enforcement action against Kraken for allegedly operating an unlicensed securities exchange, broker, dealer, and clearing agency, is based on an overly broad interpretation of what constitutes an “investment contract.” The states and industry representatives fear that this could undermine specific state laws designed to address the unique risks of non-securities products. The SEC’s lawsuit, originally filed in November 2023, accuses Kraken of unlawfully facilitating the buying and selling of crypto asset securities since September 2018 and commingling client funds, among other allegations.
The SEC has been criticized for its approach to regulating the crypto industry, often through enforcement actions against firms like Coinbase, Binance, and Bittrex’s U.S. branch. The Chamber of Digital Commerce’s brief suggests that the SEC’s aggressive stance could force crypto companies to either abandon blockchain technology or move their operations outside the United States. The outcome of this legal battle could have far-reaching implications for the regulation of the cryptocurrency industry in the U.S.