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State Attorneys General and Industry Stakeholders Challenge SEC’s Jurisdiction in Kraken Lawsuit

Kraken

State attorneys general, along with stakeholders, have raised objections to the U.S. Securities and Exchange Commission’s (SEC) lawsuit against the cryptocurrency exchange Kraken, arguing that the SEC has overstepped its jurisdiction.

A coalition of state law enforcement officials from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas jointly submitted an amicus brief in support of Kraken on Thursday. They expressed concerns that the SEC’s lawsuit could adversely affect consumers and criticized the agency’s attempt to broaden the definition of an “investment contract,” contending that cryptocurrencies should not automatically be classified as securities.

The brief, aligning with arguments presented by Kraken and other crypto firms, emphasized that the states were not endorsing the exchange but rather opposing the federal regulator’s actions. It highlighted the states’ interest in safeguarding consumer protection and other state laws from potential preemption by the SEC’s regulatory measures, which might not be as tailored to the specific risks associated with non-securities products.

Furthermore, the filing underscored that state cases have historically played a crucial role in clarifying the definition of investment contracts. It cautioned that if the SEC were to prevail in its lawsuit, it could potentially override state consumer protection laws and regulations pertaining to cryptocurrencies.

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