In Kraken’s response, and an accompanying blog post, the exchange echoes the legal arguments deployed by competitors Binance and Coinbase in similar lawsuits, and contends that the enforcement action was retaliation for political speech. Kraken received notice of the lawsuit the day after Chief Legal Officer Marco Santori testified about SEC overreach in front of Congress in May.

“Crypto innovators in the United States should not have to fear retaliation for their political speech,” read Kraken’s blog post. “They should be free from intimidation by a politically compromised agency.”

Founded in 2011, Kraken was one of the first crypto exchanges in the U.S., though it’s lagged in volume behind Coinbase and Binance. (Cofounder Jesse Powell, an outspoken and often controversial spokesperson for the crypto industry, stepped down in 2022 amid media reports about conflicts with employees.)

After the collapse of FTX in November 2022, Kraken became one of the first recipients of a new wave of SEC enforcement actions. In February 2023, the company settled with the agency for $30 million over a staking feature offered to customers that, according to the SEC, constituted offering unregistered securities. While Kraken did not admit or deny the allegations as part of the deal, the company agreed to end its staking program in the U.S.

In November, the SEC hit Kraken with a new lawsuit, this time focused on its crypto trading business. Similar to suits filed against Coinbase and Binance, the SEC alleged that Kraken operated as a traditional securities exchange, broker, dealer, and clearinghouse without registering with the agency.

In the complaint, the agency cited several crypto assets offered on the platform that it has argued are securities, including Solana, the Polygon blockchain’s MATIC, and the Cardano blockchain’s ADA.

The SEC also alleged that Kraken commingled customers’ money with its own, citing an independent auditor hired by the exchange—a grave accusation, given that commingling funds contributed mightily to the death of FTX. Different from Sam Bankman-Fried’s ill-fated exchange, however, Kraken wasn’t accused by the SEC of misappropriating customer funds.

‘Rules for this industry’

The SEC has long argued that the vast majority of crypto assets qualify as securities because of the Howey Test, a Supreme Court precedent that describes securities as an investment of money in a common enterprise with the expectation of profit from the efforts of others. Crypto exchanges have shot back that subsequent case law dictates an actual contract must exist—generally not the case when it comes to crypto trading.

“While the SEC invites the Court to adopt a principle without any limit, Kraken does not,” the company’s attorneys wrote. They argue that investments in anything that could increase in value because of a broader “ecosystem” could include collectibles such as trading cards and Beanie Babies, which don’t fall under SEC remit—a common refrain in the crypto industry.

The filing on Thursday doesn’t directly address the allegations of commingling. Instead, the attorneys argue that the SEC does not allege “fraud” or “consumer harm.”

A spokesperson for the SEC didn’t immediately respond to a request for comment.

The Kraken lawsuit is being litigated in the U.S. District Court for the Northern District of California, while the Binance lawsuit is in the D.C. District Court, meanwhile Coinbase and Terraform Labs await decisions from New York’s Southern District. A proactive lawsuit against the SEC was filed yesterday in federal court in Texas, which is seen as a friendlier jurisdiction to anti-SEC actions.

All cases hinge on whether cryptocurrencies constitute securities and fall under SEC jurisdiction, a question that will remain unresolved through the appeals process—unless Congress passes new regulation, which looks increasingly unlikely in an election year.

“Kraken supports building coherent rules for this industry,” the company said in a blog post on Thursday. “But the SEC is moving in the wrong direction.”