> The complaint against Kraken alleges no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty. It includes big dollar amounts but does not allege a single one of those dollars is missing or misused – no ponzi scheme, no failure to maintain adequate reserves, and no failure to preserve the identity of client funds 1:1. Indeed, none of these things would be true.
> Instead, the complaint makes a technical argument: that Kraken’s business requires special securities licenses to operate because the digital assets we support are really “investment contracts.” This is incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.
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> The SEC already tried this theory and a court rejected it outright. The SEC argued in that case that digital assets bought and sold on trading platforms were really securities transactions. The Federal Court for the Southern District of New York disagreed, ruling that the SEC failed entirely to satisfy the relevant legal test. The court held that the SEC’s unprecedented legal theory was contrary to the “economic reality” of such transactions. The SEC’s case against Kraken will fail, too, and for the same reasons.
> The SEC alleges that Kraken “commingled” its own funds with its clients’. This is a similar allegation already made of other crypto trading platforms. The SEC cannot and does not allege that any customer funds are missing, or any loss has occurred. Nor does it allege that any loss will occur. The complaint itself concedes that this so-called “commingling” is no more than Kraken spending fees it has already earned.
> The SEC famously argues that digital asset trading platforms like Kraken can simply “come in and register” with the agency. As most securities law experts know, there is not a single law on the books supporting this position. The SEC has promulgated no rule describing how an order in a digital asset should be matched, no guidance on how a trade should be cleared, and articulated no standards for how to broker a digital asset transaction. The allegation is hollow; there is no such thing as an exchange, broker dealer, or clearing agency for investment contracts. The SEC is demanding compliance with a regime that doesn’t exist.