Kraken is fighting a lawsuit filed by the SEC in November 2023. It has been alleged that Kraken had violated federal securities laws, after a judge ruled in August that the case against them should be tried alongside other major cryptocurrency exchanges such as Binance and Coinbase. Kraken refutes the SEC allegations and continues to challenge the regulator.
Kraken vs SEC Litigation Continues
Because the Securities Act and the Exchange Act do not regulate digital assets, Kraken stated that there was no legal obligation for them to register with the SEC. Their primary argument of defense is that Kraken is not an exchange, broker or clearing house within the meaning of these laws.
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In addition, Kraken’s legal representation targeted the SEC’s application of the Howey test – a legal test designed for distinguishing securities to determine if they should be regulated. The exchange exclaimed that the digital assets for which it provides market-making services for are not investment contracts. As a result, they do not have the same rights and responsibilities as investments in securities, such as stocks or bonds.
Kraken’s defense also argued that the SEC holds no authority over the company and that the attempts at enforcement constitute an overuse of jurisdiction.
Kraken Pushes Back to Defend Crypto Rights
US Senator Cynthia Lummis also came out in support of Kraken, referring to the SEC when she called for a clear and concise regulatory framework of cryptocurrencies to avoid over-regulation.
Kraken’s previous run-ins with the SEC have influenced its current defense. This isn’t the first time Kraken has clashed with the SEC. The court denied an initial motion to dismiss the lawsuit, forcing the exchange to prolong its defense. Kraken’s lawyers pointed out that the SEC had not provided sufficient details to prove that the exchange had violated securities laws.
Kraken’s defensive stance in the face of the SEC’s allegations differs from the approach taken by other cryptocurrency exchanges. For example, eToro recently reached an agreement with the SEC. As part of the deal, eToro agreed to restrict its US customers to trading only Bitcoin, Ethereum, and Bitcoin Cash, and to pay a fine of $1.5 million. Kraken chose to defend the allegations in court instead of reaching a similar agreement with the plaintiffs.
Should You Continue Using Kraken?
First and foremost, Kraken’s longevity in the industry is proof that they are a trustworthy company. They offer trading throughout Australia, Canada, Europe, Japan and the US, with the only restrictions being in the states of New York and Washington, as they do not currently have the required license to operate in these states.
Kraken’s Proof of Reserves
Kraken is independently insured and one of the few in the industry to hold 100% reserves to safeguard users’ funds. This means your funds would theoretically be fully protected if any unexpected breaches were to occur.
This is a big plus point for those who may be reluctant to start trading cryptocurrency for security reasons. It is also worth noting that, unlike some other exchanges, Kraken has never suffered from any significant hacks or major security breaches in the past.
Kraken’s KYC and AML Measures
From a trader’s perspective, Kraken adheres to all relevant KYC and AML procedures in the areas where it offers trading. They also ensure that your account is protected by two-factor authentication, which provides an extra layer of security. Additionally, there’s also regular independent audits of the platform to ensure that every aspect meets the highest security standards.
