Kraken, one of the largest cryptocurrency exchanges, was sued by the SEC in the Northern District of California last November. The ongoing legal battle between cryptocurrency exchange Kraken and the SEC has taken a major turn. On August 23, U.S. District Judge William H. Orrick of the Northern District of California ruled that the SEC’s lawsuit against Kraken will proceed, denying a request to dismiss the case.
History of the Kraken Trial
The SEC has sued one of the largest crypto exchanges, Kraken November 2023. It argued that the cryptocurrency exchange violated federal securities laws because it failed to register with the agency as a broken or exchange. In its complaint, the SEC requested that Kraken be subject to stiff penalties and that it be prohibited from committing further securities violations. The lawsuit is part of a larger SEC crackdown on cryptocurrency exchanges for similar violations. Binance and Coinbase, like Kraken, attempted to have their respective cases dropped but failed.
The reign
The U.S. District Court finds that the SEC believes that at least some of the crypto transactions on the Kraken platform are investment contracts and therefore securities. And under the securities laws, they should be registered with the SEC. This decision relies on the Howey test, but Kraken argued that cryptocurrencies do not meet this test. And for this reason, cryptocurrencies should not be classified or treated as securities. Kraken is not the first cryptocurrency exchange to make this statement, but the SEC is not satisfied with it. It wants Kraken to face civil penalties.
Judge Orrick agreed that none of the cryptos listed on Kraken are securities; however, he added that the contracts surrounding their sale could be considered securities. The distinction is very critical because it is similar to the case involving Ripple Labs and the XRP token. Despite all of these confusions, the judge allowed the case to proceed.
Implications for Kraken
Kraken exchange Chief Legal Officer Marco Santori shared his joy over the partial victory over social media platform X (formerly Twitter). According to him, this is an important victory for Kraen, as the ruling made it clear that the tokens traded on the exchange are not securities.
What’s next?
The SEC vs Crypto lawsuits have a long history. It all started with the SEC filing a lawsuit against Ripple Labs for selling their XRP token during the ICO round. Over the years, the SEC has filed similar cases for multiple crypto projects and exchanges. Kraken exchange is the latest victim. It would be interesting to see what happens next, as the court has ordered both parties to file a joint statement by October 8th. The statement will also include a proposed schedule of the case and trial dates.