Kraken Demands Jury Trial in SEC Lawsuit, Presents Defense Arguments

Binance and Coinbase also face similar allegations by the SEC of violating federal securities laws for failing to register as a broker, clearinghouse or exchange.

Major crypto exchange Kraken has filed its response to the U.S. Securities and Exchange Commission’s (SEC) lawsuit, demanding a jury trial and presenting 18 defenses against the allegations.

The SEC filed a civil lawsuit against Kraken last November, alleging that the exchange failed to register 11 tokens – ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL – as securities. The regulator is seeking a permanent injunction barring Kraken from further securities violations, as well as disgorgement of its “ill-gotten gains” and other civil penalties.

In its response, filed Thursday in the U.S. District Court for the Northern District of California, Kraken denied that it has engaged in illegal conduct, responding to each allegation in the SEC's lawsuit.

"Defendant denies each, every, and all of the allegations contained in the Complaint, except such allegations as are expressly admitted herein," the filing reads.

Kraken reiterated its position that digital assets, such as the 11 tokens listed by the SEC, are not considered “securities” under federal law. The exchange said it never registered with the SEC because it was never required to do so, and that it was not an exchange, a broker dealer or a clearing agent within the meaning of the Exchange Act.

"Neither the Securities Act nor the Exchange Act includes digital assets within the definition of an 'investment contract,'” Kraken stated in the filing. "The digital assets themselves cannot be the investment contracts because they carry none of the rights and obligations of a share of stock, a bond, or any other financial asset that Congress has said is subject to SEC regulation."

Kraken went on to admit that it lists more than 220 crypto assets globally, permitting margin trading, over-the-counter trading desk, instant buy features, and customer applications, but denied that these services transform its platform into a securities exchange, clearing agency, or broker-dealer.

"Kraken provides a trading platform for digital assets that facilitates transactions between buyers and sellers of digital assets. At no time has Kraken acted as an exchange, clearing agency, or broker-dealer within the meaning of the Exchange Act," the filing said.

"Kraken further avers that the SEC failed to state a claim upon which relief may be granted because it did not have the authority to regulate Kraken," the filing added.

"The Securities Act and the Exchange Act do not apply to digital assets, and the SEC has never promulgated any rules or regulations that would define or include digital assets within the definition of a security," Kraken stated.

"The SEC never provided Kraken with any notice that it considered digital assets to be securities or that Kraken was an exchange, clearing agency, or broker-dealer within the meaning of the Exchange Act," the filing continued.

"The SEC never provided Kraken with an opportunity to be heard before instituting this action or commencing its investigation into Kraken."

Specifically, Kraken accused the SEC of acting without due process and fair notice, suggesting action had been taken against it for exercising its first amendment.

"The SEC never provided any guidance to Kraken regarding the application of the federal securities laws to digital assets, digital asset trading platforms, or any of Kraken’s activities," the filing said.

"Instead, the SEC commenced this action without providing Kraken with fair notice or an opportunity to be heard, and in a manner that chills Kraken’s First Amendment right to petition the government."

The filing also included a demand for a jury trial, stating: "Defendant demands a trial by jury of all issues so triable."

The SEC has been cracking down on major crypto exchanges over the past few months, alleging that they are failing to register digital asset securities and to provide full, fair, and truthful disclosure.

In March, a California judge ruled that the SEC's lawsuit against Kraken will proceed to trial, following similar rulings in cases brought on by the agency against Binance and Coinbase (COIN). Both Binance and Coinbase also face allegations of violating federal securities laws by not registering as a broker, clearinghouse or exchange with the SEC.

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