On Tuesday, February 27, 2024, The Digital Chamber of Commerce filed an administrative motion in the United States District Court for the Northern District of California seeking leave to file an amicus brief in support of Payward Inc. and Payward Ventures Inc., collectively known as Kraken, in their motion to dismiss the complaint brought against them by the Securities and Exchange Commission.
The SEC had filed a complaint against Kraken on November 20, 2023, alleging that the company, through its cryptocurrency trading platform, operated as an unregistered national securities exchange, broker-dealer, and clearing agency in violation of registration provisions of the Securities Exchange Act of 1934. Specifically, the SEC argues that Kraken facilitated the buying and selling of certain digital assets that constitute securities under US law without registering the required functions with the Commission.
In its motion, The Digital Chamber of Commerce explained that it is a trade association representing over 200 members of the blockchain and cryptocurrency industry globally, including digital asset exchanges and other participants. The Chamber stated its mission is to foster a legal and regulatory environment with regulatory certainty where blockchain and digital assets can be applied commercially while complying with applicable law.
The motion notes The Chamber has taken several compliance-focused initiatives, including partnering with over 100 government and commercial entities through its Blockchain Alliance to combat criminal uses of blockchain technology. It also works with policymakers through programs like the Token Alliance network of thought leaders developing tools for industry guidance.
In the administrative motion, The Chamber explained it sought to file an amicus brief to assist the Court in weighing the merits of the SEC’s arguments. Specifically, whether the digital assets in question constitute securities under law and if the SEC overstepped its statutory authority and failed to provide due process through its “regulating through enforcement” approach.
The Chamber argued its brief would provide relevant context considering the case’s implications for the entire blockchain industry, not just the named parties. However, it took no position on the factual merits of the SEC’s allegations against Kraken.
In its underlying complaint, the SEC alleges Kraken operates as a securities exchange by bringing together buyer and seller orders on its platform using established methods. It further claims Kraken acts as an unregistered broker by executing transactions for customer accounts and as an unregistered dealer by buying and selling digital assets for its own accounts without exception.
Finally, the SEC argues Kraken serves as an unregistered clearing agency by acting as an intermediary to settle transactions and securities depository for Kraken customer transactions. The complaint states Kraken’s failure to register these functions has deprived investors of protections like SEC oversight, recordkeeping requirements, and safeguards against conflicts of interest.
The SEC is seeking injunctive relief, conduct-based injunctions, disgorgement of profits plus interest, and civil penalties through its complaint. It alleges Kraken’s deficient internal controls and poor recordkeeping practices also present risks to customers, including commingling of customer funds and assets with its own.
The Digital Chamber of Commerce will now await the Court’s decision on whether to grant it leave to file the proposed amicus brief in support of regulatory clarity on digital assets and arguing the SEC exceeded its statutory authority in bringing the complaint against Kraken.
With cryptocurrency and blockchain technologies positioning as trillion-dollar industries, the outcome of this case could have significant implications beyond just the named parties.
Please contact BlockTribune for access to a copy of this filing.