Kraken Fails to Dismiss SEC Lawsuit, Must Respond Within 20 Days
A U.S. federal judge ruled that the SEC's case against Kraken for allegedly operating as an unregistered securities exchange can proceed. The ruling suggests some of Kraken's cryptocurrency transactions could be considered securities, subject to regulation. Kraken has 20 days to respond as the SEC continues its broader crackdown on the crypto industry.
Because Bitcoin
August 23, 2024
According to a recent The Block report, Kraken failed to have the SEC’s lawsuit against it dismissed. U.S. District Judge William H. Orrick ruled that the SEC plausibly argued some transactions on Kraken's platform could be considered investment contracts, and thus securities subject to regulation. Between 2020 and 2021, Kraken earned over $43 million from trading fees while imposing minimal restrictions on asset transactions.
The SEC's lawsuit, filed on November 20, 2023, accuses Kraken of operating as an unregistered securities exchange, broker-dealer, and clearing agency, and alleges improper handling of customer assets and information. The SEC claims tokens like Cardano's ADA, Cosmos's ATOM, and Solana's SOL are securities offered by Kraken. Judge Orrick referenced the Howey test, a legal standard used to determine if an asset is a security, noting that while cryptocurrency is new, the SEC's regulatory principles are not.
Kraken argued that the SEC was overstepping its authority, but SEC Chair Gary Gensler has consistently maintained that most digital tokens are unregistered securities. Under Gensler, the SEC has targeted major crypto firms like Binance and Coinbase, both of which also failed to dismiss SEC lawsuits.
Kraken must respond to the SEC’s complaint within 20 days, with a trial date likely to be set on October 15. Kraken’s Chief Legal Officer, Marco Santori, responded on 𝕏, stating the ruling shows the SEC cannot regulate the crypto industry solely through enforcement. He called on Congress to pass a comprehensive framework to clarify regulations and support blockchain technology growth.
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