In a pending lawsuit against cryptocurrency exchange Kraken, a group of attorneys general have challenged the authority of the US Securities and Exchange Commission (SEC).
On Thursday, state law enforcement officials from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota and Texas filed a statement in the SEC’s lawsuit against Kraken.
They accused the SEC of expanding the definition of “investment contract” and claimed the case could harm consumers. The attorney general said cryptocurrencies should not automatically be classified as securities.
The states oppose the SEC’s enforcement action.
The states do not support the exchange, but they do oppose the federal regulator.
Attorneys have raised concerns about possible expropriation of consumer protection and cryptocurrency regulations by the government.
The attorney general stressed that the SEC’s exercise of non-delegated authority puts consumers at risk. He added that some state laws protect consumers better than federal securities laws.
The statement said states have a strong interest in preventing the potential hijacking of consumer protections and other state laws by the SEC’s attempt to regulate crypto assets as securities.
In its brief, the amicus warned that the SEC could preempt state consumer protection and cryptocurrency regulations if the case is settled. In addition, some states have introduced legislation that treats cryptocurrencies as money transmitters.
Last year, the SEC sued Kraken for failing to register the exchange as a trading platform, clearing house or securities broker. Other companies, such as Coinbase and Binance, have also been sued by the Securities and Exchange Commission (SEC).
Kraken recently filed a motion to dismiss the SEC’s charges, arguing that the commission overstepped its bounds and failed to provide credible evidence.
Industry leaders are expressing support for Kraken.
Industry groups such as the DeFi Education Fund, the Chamber of Digital Commerce and the Blockchain Association have taken an interest in the case and filed amicus briefs in support of Kraken.
Senator Cynthia Lummis (R-Wyo.), filed a statement on the case, reiterating the position taken in the SEC’s lawsuit against Coinbase.
Meanwhile, the senator accused the SEC of employing a “judgment by enforcement” strategy , stressing that companies in the industry that try to obtain information from the SEC often face enforcement actions that lack clear justification and ultimately harm consumers.
Recently, SEC Commissioner Hester Peirce said that the regulatory agency operates in “enforcement-only mode” when it comes to regulating cryptocurrencies.
