Major cryptocurrency exchange Kraken is seeking to dismiss the lawsuit filed by the US Securities and Exchange Commission (SEC), arguing that the Commission was overstepping the boundaries of its regulatory authority.

The SEC sued Kraken in November 2023, alleging that the crypto exchange co-mingled customer funds and listed assets deemed as securities on its platform.

Kraken Fights Back

Kraken filed a motion on Feb. 22, 2024, in the U.S. District Court Northern District of California, to dismiss the SEC’s complaint against it.

According to the filing, Kraken noted that the SEC’s intent to sue it came one day after the firm’s congressional testimony in May 2023, where it criticized the agency for its “regulation-by-enforcement approach.”

During the testimony, the firm said that the Commission’s continuous litigation against the crypto industry was not effective in protecting consumers while also calling on Congress to address regulatory gaps.

Speaking on the lawsuit, Kraken argued that the SEC’s complaint did not touch on fraud or supposed consumer harm but rather the exchange’s alleged unregistered operations.

“The SEC does not allege fraud. The SEC does not allege consumer harm. The SEC’s sole claims are that Kraken has somehow operated in plain sight for almost a decade as an unregistered securities exchange, broker-dealer, and clearing agency, in violation of the Exchange Act.”

The SEC’s November 2023 lawsuit also listed some crypto tokens on the Kraken platform, such as SOL, OMG, MANA, ALGO, and ATOM, claiming that they were securities.

However, Kraken, in a blog post, stated that “none of the assets in the SEC’s Complaint are investment contracts under the law.” The company further said that cryptocurrency assets did not fulfill the Howey test.

Previous Dealings With the SEC

Apart from trying to dismiss the SEC’s claims, Kraken also claimed that the regulator was exercising broad jurisdictional powers without clear authorization from Congress. According to the exchange, the Commission’s overstep of its regulatory authority raises concerns about potential abuse of power.

“But the SEC is moving in the wrong direction. Its theories in litigation are incoherent. We remain committed to doing what we believe is right for our community of clients and innovators […] So today, we are asking the Court to dismiss this case and hand legislative power back to Congress, where it belongs.”

In February 2023, the SEC accused Kraken of conducting an unregistered offering and sale of its crypto-staking services. The company later paid a $30 million fine imposed by the agency and halted the service.

Other major crypto exchanges, such as Binance and Coinbase, have also filed motions to dismiss the SEC lawsuits against them.