SEC Identifies 16 Crypto Tokens as Securities in Lawsuit Against Kraken
The U.S. Securities and Exchange Commission (SEC) has recently identified 16 crypto tokens as securities in its lawsuit against the cryptocurrency exchange, Kraken. This move by the SEC has stirred up the crypto community, leading to a widespread discussion about the nature of these tokens and their classification as securities.
The SEC’s Allegations
In a recent development, the U.S. Securities and Exchange Commission (SEC) has named 16 crypto tokens as securities in its lawsuit against the cryptocurrency exchange, Kraken. The lawsuit, filed on Monday, has brought to light the SEC’s stance on these specific crypto assets. The tokens identified include ADA, AXS, ALGO, ATOM, CHZ, COTI, DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SOL.
The SEC’s complaint states that Kraken currently makes these crypto assets available for trading. These assets have been the subject of prior SEC enforcement actions based on their status as crypto asset securities. The regulator has pointed out that some of these crypto assets had been named in several previous legal cases, including those involving other major exchanges like Coinbase, Binance, and Bittrex.
The SEC’s View on Crypto Tokens
SEC Chairman Gary Gensler has repeatedly expressed his view that all crypto tokens, except for Bitcoin, are securities. This perspective has been a topic of debate within the crypto community. However, a recent court ruling found that XRP, one of the largest cryptocurrencies by market capitalization, is “not necessarily a security on its face.” This ruling indicates that the classification of crypto tokens as securities may not be as straightforward as it seems.
In its lawsuit against Coinbase in June, the SEC stated that certain crypto assets meet the criteria of being investment contracts. These include ICP, AXS, CHZ, FLOW, DASH, VGX, FIL, NEXO, NEAR, ADA, SAND, SOL, and MATIC. Similarly, in a lawsuit against Binance, the SEC identified 12 crypto tokens as securities: BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI. In April, the SEC also classified DASH, ALGO, TKN, NGC, and OMG as unregistered securities in a lawsuit against Bittrex.
Kraken’s CEO, Dave Ripley, responded to the SEC’s charges, emphasizing that the company strongly disagrees with the SEC’s claims. He stated that Kraken stands firm in its view that it does not list securities and plans to vigorously defend its position. This sentiment is shared by Coinbase, which has also insisted that its platforms do not list crypto securities.
Kraken has responded to the SEC’s allegations in a blog stating that it operates as a registered entity and holds registrations, licenses, authorizations, and approvals around the world, including in the United States, United Kingdom, European Union, and Canada, among other developed and emerging markets. The company has consistently advocated for practical, effective rules for digital assets and has emphasized its commitment to strong, harmonized consumer protections and anti-money laundering practices in the U.S.
The SEC’s Charges Against Kraken
The SEC has charged Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as Kraken, with failing to register the offer and sale of their crypto-asset staking-as-a-service program. According to the SEC, since 2019, Kraken has offered and sold its crypto asset “staking services” to the general public, whereby Kraken pools certain crypto assets transferred by investors and stakes them on behalf of those investors.
Staking is a process in which investors lock up – or “stake” – their crypto tokens with a blockchain validator to be rewarded with new tokens when their staked crypto tokens become part of the process of validating data for the blockchain. When investors provide tokens to staking-as-a-service providers, they lose control of those tokens and take on risks associated with those platforms, with very little protection.
To settle the SEC’s charges, the two Kraken entities agreed to immediately cease offering or selling securities through crypto asset staking services or staking programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties.
The Need for Clear Regulations
Following the SEC’s move against Kraken, U.S. Senator Cynthia Lummis called on Congress to pass a regulatory framework to provide clear rules to the SEC on what is a security and what is a commodity. She stressed that the SEC cannot continue ruling by enforcement and that crypto asset companies have repeatedly tried to get guidance from the SEC only to be hit with enforcement actions.
In response to the SEC’s action, Commissioner Hester M. Peirce issued a statement dissenting from the SEC’s decision. She argued that using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. She also expressed concern that the SEC’s solution to a registration violation is to shut down entirely a program that has served people well.
The SEC’s identification of 16 crypto tokens as securities in the Kraken lawsuit has sparked a debate about the nature of these tokens and their classification as securities. As the crypto industry continues to evolve, the need for clear and comprehensive regulations becomes increasingly apparent. It remains to be seen how this lawsuit will impact the future of crypto regulation and the status of these 16 tokens.