California Judge Clears Path for SEC's Case Against Kraken to Go to Trial

According to a CoinDesk report, a California judge has ruled that the U.S. Securities and Exchange Commission's (SEC) lawsuit against Kraken will proceed to trial. The SEC sued Kraken last November in the Northern District of California, alleging the crypto exchange violated federal securities laws by failing to register as a broker, clearinghouse, or exchange. The SEC seeks to bar Kraken from further violations and demands disgorgement of “ill-gotten gains” and other penalties.

Kraken's attempt to dismiss the case was denied by U.S. District Court Judge William H. Orrick on August 23. Orrick found that the SEC had “plausibly alleged” that some cryptocurrency transactions facilitated by Kraken could be considered investment contracts and thus subject to securities laws. While Orrick agreed with Kraken that the cryptocurrencies themselves are not securities, he noted that contracts related to their sale could still qualify as investment contracts.

Kraken had also argued under the Major Questions Doctrine that the SEC lacked authority to expand its regulatory reach without clear congressional approval. However, Orrick rejected this argument, stating that the cryptocurrency industry is not significant enough in the U.S. economy to invoke this doctrine.

Kraken’s Chief Legal Officer, Marco Santori, celebrated part of the ruling on X (formerly Twitter), emphasizing that the court found none of the tokens traded on Kraken to be securities. However, the ruling leaves the door open for the SEC to argue that contracts surrounding the sale of these tokens might still fall under federal securities laws. Both Kraken and the SEC must submit a Joint Statement by October 8, proposing a case schedule and trial date.

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