A group of eight state attorneys general in the United States has jointly filed an amicus brief challenging the Securities and Exchange Commission’s (SEC) enforcement action against the cryptocurrency exchange Kraken. The brief, submitted on February 29, contends that the SEC has exceeded its delegated authority in the lawsuit.
Representatives from Arkansas, Iowa, Mississippi, Montana, Nebraska, Ohio, South Dakota, and Texas, along with industry lobbyists, participated in filing the brief. They argue that the SEC’s attempt to regulate crypto assets as securities without a clear investment contract goes beyond its jurisdiction. The attorneys general emphasize the importance of preserving state consumer protection laws tailored to the risks associated with non-securities products.
In their filing, the state officials highlight the potential risks to consumers posed by the SEC’s broad interpretation of what constitutes an “investment contract.” They assert that certain state laws provide greater consumer protection than federal securities laws and caution against preempting these state statutes.
This development follows Kraken’s motion on February 22, requesting the dismissal of the SEC’s lawsuit on similar grounds of regulatory overreach. Kraken argues that granting the SEC’s claims would set a dangerous precedent and grant the agency excessive authority. The exchange refutes the SEC’s allegations of operating an unlicensed securities exchange, broker, dealer, and clearing agency, challenging the characterization of crypto tokens as “investment contracts.”
The SEC initiated legal action against Kraken in November, alleging violations related to operating without registration, commingling client funds, and failing to prevent conflicts of interest. Similar complaints have been lodged against other crypto-related firms, including Coinbase, Binance, and the U.S. branch of Bittrex, with ongoing cases involving the first two companies.
As the legal battle unfolds, the dispute between the SEC and Kraken underscores broader questions about regulatory jurisdiction and the classification of crypto assets within the evolving regulatory landscape.