Montana Criticizes SEC’s Overreach in Kraken Case: Asserts Not All Crypto Assets Are Securities
Bollywoodfever, March 3: Montana Leads Coalition Against SEC’s Broad Interpretation of ‘Investment Contract’ in Kraken Lawsuit
In a significant move, Montana, alongside seven other states, has voiced opposition to the U.S. Securities and Exchange Commission (SEC)’s approach towards cryptocurrency regulation, particularly in its legal battle against Kraken, a prominent U.S.-based crypto exchange.
Through an amicus curiae submission, these states challenge the SEC’s “regulatory power grab,” arguing that not all crypto assets should be deemed securities and cautioning against the SEC’s broad application of the “investment contract” concept, which they fear could override state laws.
Montana, joined by Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas, has not taken sides in the SEC vs. Kraken case.
However, the collective stance of their attorney generals firmly critiques the SEC’s expansive regulatory ambitions, suggesting it seeks to extend its reach beyond its statutory authority.
Montana’s Attorney General, Austin Knudsen, articulated the coalition’s viewpoint, stating, “Crypto assets are not automatically securities.
The SEC’s overly broad interpretation of investment contract means that the SEC is exceeding its authority by attempting to regulate non-securities.”
The group emphasizes that the traditional definition of an “investment contract” was intended to safeguard financial investors under “blue sky” laws, not to regulate the broader spectrum of asset purchases by the general public.
They argue that cryptocurrency transactions on secondary markets like Kraken do not satisfy the criteria of the “Howey test,” which determines whether an arrangement constitutes an investment contract.
The amicus curiae underscores that transactions on platforms such as Kraken do not create an investment contract, as there is no expectation of profits generated by the efforts of others.
This perspective challenges the SEC’s assertion that the existence of a token’s ecosystem could fulfill the “efforts of others” requirement of the Howey test—a notion previously questioned by Judge Failla in the SEC’s lawsuit against Coinbase.
The states caution against the ramifications of adopting the SEC’s expansive interpretation, suggesting it could inadvertently classify hobbyist activities, like baseball card collecting, as securities trading, thereby imposing undue regulatory burdens on individuals and platforms outside the traditional securities domain.
This broader interpretation, they argue, could encroach upon areas typically governed by state law, such as consumer protection, and hinder state-led initiatives to regulate and innovate within the cryptocurrency sector.
Kraken’s Chief Legal Officer, Marco Santori, commended the states for their “cogent” arguments, highlighting the importance of the amicus curiae in opposing the SEC’s “unconstitutional expansion” of authority, with a focus on protecting consumers.
Additionally, on February 27, the Chamber of Digital Commerce submitted a document in support of Kraken, further bolstering the exchange’s stance in the ongoing legal dispute.
Also Read, Bitcoin Hits $64K, Continuing Its Remarkable Growth Trend
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