Senator Cynthia Lummis defends Kraken against the SEC

Senator Cynthia Lummis has strongly criticized the Security and Exchange Commission (SEC) for its serious new accusations against crypto exchange Kraken. For the US senator, the SEC is harming US citizens and holding back innovation by fighting crypto companies instead of providing clear regulation. She promises to take legislative action to reframe the US financial regulator.

SEC again criticized in the USA

The battle waged by Security and Exchange Commission (SEC) against crypto exchanges continues to provoke reactions. In addition to economic players, several political leaders are openly criticizing the repressive approach of the American financial watchdog. This is particularly true for senator Cynthia Lummis who makes no secret of her opposition to the SEC. Instead of setting rules in advance, the SEC favors a kind of regulation by execution.

Reacting to the legal proceedings against the crypto exchange Kraken, the senator asked the SEC to stop cracking down on the crypto industry. In particular, the senator points out that crypto companies have repeatedly contacted the SEC for guidance. This is particularly true of the exchange Coinbase which had to take legal actions, hoping that the judge would force the SEC to respond to its July 2022 petition on regulatory clarification of the crypto sector.

Unfortunately, the SEC refuses to provide clear explanations, taking advantage of this regulatory vagueness to fight crypto exchanges.

Crypto asset companies have repeatedly tried to obtain guidance from the SEC, but have been met with coercive measures, causing unnecessary harm to consumers.

Senator Cynthia Lummis.

To put an end to the incessant attacks by the SEC against crypto exchanges, the senator recommends that Congress adopt a regulatory framework defining the clear difference between a security and a commodity. Lummis is also counting on the passage of the Responsible Financial Innovation Act she initiated with her colleague Kirsten Gillibrand. This clear regulatory framework will SEC and allow financial innovation to flourish in the U.S., hopes Cynthia Lummis.

What does the SEC have to say about Kraken?

What are the SEC’s criticisms of Kraken which had reached an agreement with the SEC a few months ago?

In its press release dated November 20, 2023, the SEC charges Kraken for:

  • mixing customer assets with company funds;
  • having paid his own invoices with customer funds;
  • having illegally carried out its activities of buying and selling crypto assets.

According to the SEC, Kraken acts as an exchange, broker, dealer and clearing agency. However, the exchange has never registered any of these functions with the Commission as required by law.

In its complaint, the SEC also considers that several cryptocurrencies traded on Kraken are titles. In particular, the SEC cites Cardano (ADA), Algorand (ALGO), Cosmos (ATOM), Filecoin (FIL), Flow (FLOW), Internet Computer Protocol (ICP), Decentraland (MANA), Polygon (MATIC), Near (NEAR), OMG Network (OMG) and Solana (SOL).

It is interesting to note that Ethereum (ETH) is not mentioned by the SEC. Ironically, a New York prosecutor is using it to justify the prosecution against the exchange Kucoin.

Kraken ready to defend itself vigorously against the SEC

Last February, Kraken had accepted to pay a hefty fine and shut down its staking service in the U.S. in response to lawsuits from the SEC. This time, the exchange won’t let itself be trampled underfoot and plans to defend vigorously defend its position.

In a press release, the company provides answers to the SEC’s three main accusations.

Firstly, it rejects the accusation of commingling customer and company funds. The exchange challenges the SEC to prove that customer funds are missing today, or that a loss of funds could occur in the future.

Furthermore, Kraken believes that the charge of non-registration is empty. As far as the SEC is concerned, there is no such thing as an exchange, broker, dealer or clearing agency for investment contracts such as digital assets. Kraken also criticizes the SEC for deliberately maintaining regulatory vagueness. According to Kraken, the SEC has not promulgated any rules describing how an order on a digital asset should be compared. Nor has it issued any guidelines on how a trade should be cleared, nor has it formulated any standards on how a trade in a digital asset should be negotiated. The SEC is therefore demanding compliance with a regime that does not exist.

Finally, Kraken points out that the accusation that certain cryptos are securities is not new. The SEC argued this before a New York court without success, the judge ruling that digital assets are not securities. It goes without saying that the SEC’s case against Kraken will be dismissed on the same grounds.

While crypto exchanges are in the SEC’s crosshairs, it’s interesting to note that some political players are supporting the crypto industry. Beware, however, of crypto players who take Senator Cynthia Lummis’s support as an unconditional given. When crypto players break the law, she’s the first to denounce and demand sanctions. Binance and Tether know all about it.