State Attorneys General Argue SEC Overreach in Kraken Lawsuit
A group of state attorneys general filed a court brief Thursday arguing that the U.S. Securities and Exchange Commission (SEC) has exceeded its powers by suing crypto exchange Kraken.
Key Points:
- Eight states say SEC crypto regulation could preempt state consumer laws.
- Argue that the SEC is expanding the definition of “investment contract.”
- States have a role in investment contract clarity; worry rules could hurt consumers
The state law officials from Montana, Arkansas, Iowa, and five other states said the SEC’s action risks harming consumers and contradicts precedents on when an asset is considered a security.
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State law officials say SEC suit might harm customers
The states worry that expanded SEC authority could supersede state-level consumer protections and other regulations tailored for digital assets. They argue states have helped set standards around investment contracts in the past.
The SEC sued Kraken for failing to register as a securities broker or trading platform. The agency alleges the exchange touted certain crypto assets as securities without proper licensing.
“The SEC’s exercise of this undelegated authority puts consumers at risk by potentially preempting state statutes better tailored to the specific risks of non-securities products. Some state laws are more protective of consumers than the federal securities laws,” the filing said.
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However, the states’ filing contends that cryptocurrencies are not automatically securities just because they are listed on a trading platform. It echoes legal arguments made by Kraken itself as well as other firms the SEC has targeted, like Coinbase and Binance.
Industry trade groups and Senator Cynthia Lummis also submitted court briefs opposing the SEC’s move. While asserting they don’t favor Kraken’s interests in the case, the states warned an SEC victory could affect the state’s ability to pursue consumer protection violations.
