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Kraken co-founder Labels SEC ‘Extortionist,’ Says Regulator’s Actions ‘Threaten Innovation’

Last Updated November 21, 2023 1:01 PM
Teuta Franjkovic
Last Updated November 21, 2023 1:01 PM

Key Takeaways

  • Kraken is refuting the SEC’s allegations that it operated an unregistered securities exchange.
  • David Ripley and Jesse Powell have strongly criticized the SEC’s actions, labeling them as “factually incorrect.
  • Powell even went so far as to call the SEC an extortionist.
  • The SEC’s lawsuit against Kraken has sparked a debate about the need for a more clear approach to crypto regulation. 

Kraken, one of the world’s largest cryptocurrency exchanges, is facing a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) on Monday, November 20.

The SEC accused Kraken of operating as a securities exchange without proper registration with the regulator.

Filed in a San Francisco federal court, this legal action is part of SEC Chair Gary Gensler’s efforts to assert regulatory oversight over the cryptocurrency industry, arguing that digital assets should be treated as investment contracts and subject to federal securities laws.

Kraken Defends Its Crypto Listings, Accuses SEC of Stifling Innovation

Kraken has pledged to vigorously defend itself against the lawsuit filed by the SEC, as stated in a November 20 release . CEO David Ripley and co-founder Jesse Powell strongly contested the SEC’s claim, asserting that the exchange does not list securities.

Kraken assured that the SEC lawsuit would not impact its products and committed to serving clients without interruption. The exchange criticized  the regulator’s allegations, deeming them “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.”

Kraken argued that the SEC had not provided rules for matching orders in digital assets, guidance on clearing trades, or standards for brokering digital asset transactions. The exchange emphasized that the SEC is demanding compliance with a nonexistent regulatory framework.

Ripley reiterated  the firm’s dedication to defending its position and explicitly stated that they do not list securities tokens. He criticized the SEC for urging exchanges to register without offering clear regulatory guidelines.

Powell, echoing Ripley’s sentiments, labeled the SEC as an extortionist  and characterized its accusations as an affront to America, questioning the regulator’s motives. He suggested that financially constrained crypto firms should reconsider operating in the U.S., as the SEC is aware that a genuine legal battle could cost over $100 million and valuable time.

Senator Calls for SEC to Rethink Crypto Enforcement

US Senator Cynthia Lummis has recently criticized  the SEC’s regulatory approach towards Kraken, highlighting the absence of clear crypto rules.

Lummis pointed out that, despite crypto companies’ attempts to seek guidance from the regulator – they have continued to be met with enforcement actions and unclear rules around what does and does not constitute a securities offering.

The SEC’s Extortionist Approach to Crypto

The SEC’s lawsuit against Kraken , alleging that the exchange operated an unregistered securities exchange, represents the latest episode in its ongoing crackdown on the cryptocurrency industry. This action reflects the SEC’s expansive interpretation of securities law, which classifies nearly all major cryptocurrencies as securities.

Critics argue  that the SEC’s stance is stifling innovation in the cryptocurrency space. They point out that while the regulator insists that most cryptocurrencies fall under its purview, it has not provided a clear path for exchanges to register their businesses with the agency.

The SEC’s aggressive approach to cryptocurrency regulation is raising concerns about its potential to stifle innovation  and hinder the growth of the industry. Its actions are being perceived as extortionist, as it appears to be using its regulatory authority to force exchanges to comply with its expansive interpretation of securities law, even in the absence of a clear and workable regulatory framework.

The SEC’s stance is particularly concerning, given the potential of cryptocurrency to revolutionize various sectors, including finance, supply chain management, and data security. By stifling innovation in this emerging field, the SEC risks hindering progress and potentially depriving society of the benefits that cryptocurrency could bring.

The SEC’s actions highlight the need for a more balanced and nuanced approach to cryptocurrency regulation. One that fosters innovation while ensuring investor protection and market integrity. The current regulatory landscape, characterized by the SEC’s aggressive enforcement and lack of clarity, is unlikely to achieve these objectives. A more collaborative approach involving industry stakeholders and regulators is essential to establish a regulatory framework that promotes innovation and protects investors.

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