SEC vs Kraken Dispute Draws State AGs into the Fray

A coalition of state attorneys general is taking a stand against the U.S. Securities and Exchange Commission (SEC), accusing it of overreaching in its lawsuit against the cryptocurrency exchange Kraken. Representatives from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas have come together to express their concerns. They submitted an amicus brief in support of Kraken, not to back the exchange directly but to challenge the federal regulator’s actions.

These state officials, along with industry lobbyists and other stakeholders, argue that the SEC’s attempt to extend its regulatory reach into the realm of cryptocurrencies infringes upon states’ rights. They claim that the SEC is misinterpreting what constitutes an “investment contract” and assert that not all cryptocurrencies should be classified as securities. This standpoint resonates with arguments previously made by Kraken and other companies in the crypto space.

The state attorneys general are voicing their opposition based on the potential for federal overreach to undermine state consumer protection laws and other regulations specifically designed to address the nuances of cryptocurrency markets. They emphasize that some state laws offer greater consumer protection than their federal counterparts and that the SEC’s actions could negate these benefits.

The brief highlights the importance of state-level cases in refining the definition of investment contracts and warns of the consequences if the SEC’s lawsuit succeeds. Such an outcome could grant the federal agency the power to override state consumer protection and cryptocurrency regulations, a scenario the states are keen to avoid.

Kraken’s response to the SEC’s lawsuit, a motion to dismiss filed last week, argues that the commission has not convincingly substantiated its claims and accuses it of exceeding its regulatory jurisdiction and unwarranted authority grabbing.