Judge Denies Appeal in SEC Lawsuit
In a major setback for Kraken, a California district court judge rejected the exchange’s appeal of a previous decision to allow the SEC lawsuit to proceed. Judge William Orrick rule The interlocutory appeal motion filed by Kraken on November 18 will only delay the proceedings rather than advance resolution.
The SEC accused Kraken of selling unregistered securities by trading and selling crypto assets that the regulator deemed qualified as investment contracts under the Howey test. In detail, the SEC broadly claims that Kraken allows trading of cryptoassets such as ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG and SOL, claiming that these constitute investment contracts subject to securities laws.
Judge Orrick supported this view, stating that the SEC had sufficiently proven its claims and that discovery was necessary to fully assess whether Kraken’s operations met all elements of the Howey test.
Kraken’s legal claims dismissed
In September, Kraken sought leave to appeal an August ruling that denied its motion to dismiss the SEC case. The exchange believes that the question of whether investment contracts require formal agreements or post-sale obligations has not yet been resolved. It also claims that there are different interpretations of securities laws that should be resolved by a higher court.
However, Judge Aulick rejected these arguments, noting that since Hawei, no court has ruled that contractual formalities or post-sale obligations are prerequisites of an investment contract. He further emphasized that multiple courts have rejected Kraken’s legal position.
SEC tightens case
The SEC recently struck three defenses against Kraken, claiming that existing law clearly defines investment contracts and provides Kraken with adequate notice of compliance requirements. Regulators argued that Kraken’s defense could result in irrelevant and burdensome discovery, which Judge Orlick appeared to take into account in his ruling.
Case background
The U.S. Securities and Exchange Commission filed a lawsuit in November 2023 accusing Kraken of failing to register as an exchange, broker, dealer or clearing agency. The ongoing lawsuit seeks to determine whether Kraken’s crypto operations violated securities laws, a ruling that could have far-reaching consequences for the broader crypto industry.
What’s next?
Furthermore, despite regulatory issues, Kraken plans to launch its own blockchain “Ink” in early 2025 to cater to retail and institutional users.
Kraken has yet to respond publicly to the judge’s latest decision. As the case progresses, it remains a crucial legal battle within the SEC’s broader enforcement actions against crypto platforms.
