Oral Arguments Begin, Here’s What to Know

Kraken’s motion to dismiss the lawsuit filed by the U.S. Securities and Exchange Commission (SEC) is scheduled for oral arguments today at 1 PM ET/10 AM PT.

The SEC accuses Kraken of being unregistered exchange and broker-dealer and asserts that 11 tokens, SOL, ADA, and ALGO, are securities.

Kraken Vs. SEC Oral Arguments Begin

The SEC has accused Kraken of running an unregistered securities exchange, Kraken also has been accused of operating as an unregistered broker-dealer and also of operating as an unregistered securities clearing agency. The SEC stated that 11 tokens listed on Kraken, including ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL, are securities. Kraken’s dismissal motion relies on the Howey Test, stating that the SEC has not alleged that any securities transactions occurred on its exchange.

Kraken had filed a reply to the SEC lawsuit, arguing that the agency’s case is weak and that the suit should be dismissed. In its latest response, Kraken strongly refutes the SEC’s allegations of trading unregistered securities.

The exchange, therefore, said that the SEC did not correctly identify the investment contracts that are tradeable on the exchange and took issue with some of the terms used by the SEC, such as ‘investment concept’ and ‘ecosystem’, saying that these should have been ‘investment contract’ and ‘enterprise’ respectively.

Similarly, Kraken has received support for its motion to dismiss from Senator Cynthia Lummis, the Blockchain Association, the DeFi Education Fund, the Chamber of Digital Commerce, the Investor Choice Advocates Network, Paradigm, and two administrative law scholars. These entities have filed briefs in support of Kraken’s position.

Comparison with Coinbase Case

The legal community is waiting to see whether the SEC will employ the same arguments in Kraken’s case as in the Coinbase motion to dismiss the hearing. In that case, the SEC claimed that tokens’ ecosystems make them fall under the Howey Test to be classified as securities. The SEC will examine this argument to determine if this is still applicable in the current situation.

Moreover, Kraken relies on the SEC cases on initial coin offerings (ICOs) to back its argument. The crypto exchange notes that these cases concerned contractual rights and obligations, which is consistent with Kraken’s view of investment contracts.

Coinbase’s Chief Legal Officer, Paul Grewal, has earlier on accused the SEC of making contradictory arguments. In a similar case against Coinbase, the SEC again claimed that most of the supported tokens are investment contracts, using the Howey Test. As per Coinbase, the SEC’s mixed signals and unequal enforcement actions have led to legal ambiguity in the digital asset market.

BTC and ETH Commodity Status

The SEC has allocated commodity status to Bitcoin (BTC) and Ethereum (ETH) through the approval of spot ETFs, although SEC Chair Gary Gensler has not publicly addressed ETH’s status.

Bitcoin and Ethereum have arguably the two largest “ecosystems” behind them, raising questions about why other tokens with significant ecosystems are classified differently.

The crypto community and legal experts will closely follow today’s arguments to understand how the SEC’s stance on what constitutes security may evolve. This case, along with the Coinbase lawsuit, could set significant precedents for the regulatory landscape of digital assets in the United States.

Read Also: Kraken Disputes SEC Claims, Cites Previous ICO Cases for Support

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Kelvin is a distinguished writer specializing in crypto and finance, backed by a Bachelor’s in Actuarial Science. Recognized for incisive analysis and insightful content, he has an adept command of English and excels at thorough research and timely delivery.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.