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Eight State Attorneys General Challenge SEC’s Authority in Kraken Lawsuit

Eight state attorneys general in the United States, including officials from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, alongside industry lobbyists, jointly filed an amicus brief on Feb. 29, challenging the Securities and Exchange Commission’s (SEC) authority in the lawsuit against Kraken, a cryptocurrency exchange.

The filing, not aligning with either party, contests the SEC‘s jurisdiction over crypto assets, stating that Congress hasn’t granted such authority.

The attorneys general argued against the SEC’s broadening definition of “investment contract,” emphasizing the need for state regulation to protect consumers from potential overreach by the SEC. They emphasized:

“The court should reject categorizing crypto assets as securities absent an investment contract.

The SEC’s exercise of this undelegated authority puts state consumers at risk by preempting state statutes better tailored to the specific risks of non-securities products.”

“The SEC’s enforcement action exceeds its delegated powers,” they reiterated.

“Some state laws are more protective of consumers than the federal securities laws.”

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Kraken had previously filed a motion on Feb. 22 seeking dismissal of the lawsuit, echoing concerns of regulatory overreach.

The exchange criticized the SEC for lacking a clear boundary and expressed apprehension that a ruling in the SEC’s favor would grant excessive authority to the agency.

In response, Kraken released a blog post contesting the SEC’s allegations of operating as an unregistered entity and conducting unauthorized securities activities.

Kraken refuted the characterization of crypto tokens as “investment contracts” and highlighted the absence of any contractual agreements between customers and the exchange.

The SEC’s lawsuit against Kraken, initiated in November, alleged regulatory violations, including operating without registration, mingling client funds, and neglecting to address conflicts of interest.

Similar complaints have been levied against other crypto firms, such as Coinbase and Binance, with ongoing cases.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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