Update on Kraken’s lawsuit with SEC: Judge rejects motion to dismiss lawsuit

YEREVAN (CoinChapter.com) — Kraken, a US-based crypto exchange, suffered a legal setback when its motion to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC) was denied. The SEC alleges that Kraken operates as an unregistered exchange, broker-dealer and clearing agency. The case is moving forward and intensifying regulatory oversight in the crypto industry.

Judge rules SEC case against Kraken can continue

U.S. District Judge William H. Orrick ruled that the SEC had plausibly argued that certain transactions on Kraken's platform were securities. The judge noted that Kraken earned over $43 million between 2020 and 2021 by charging fees and imposing few trading restrictions.

The SEC's complaint, filed on November 20, 2023, accuses Kraken of failing to register as a securities exchange, broker-dealer and clearing agency and of improperly handling customer assets and information.

SEC targets major cryptocurrencies as collateral in Kraken case amid broader cryptocurrency action

The SEC identified certain cryptocurrencies, including Cardano's ADA, Cosmos' ATOM, Filecoin's FIL, Solana's SOL, and Near Network's NEAR, as securities offered by Kraken. Judge Orrick pointed to the Howey test, a legal standard from a 1946 Supreme Court case, to support the SEC's claims. The test determines whether a transaction qualifies as an investment contract, which would classify it as a security.

Kraken argued that the SEC was overstepping its authority, claiming that the agency does not have the authority to regulate all speculative investments. However, SEC Chairman Gary Gensler insisted that most digital tokens are unregistered securities subject to SEC oversight. The SEC has sued several major crypto companies, including Binance, Coinbase, and Uniswap, making Kraken's case part of a broader regulatory effort.

Kraken must respond to the SEC within 20 days; hearing date set for October 15

Kraken has 20 days to respond to the SEC's complaint, with a proposed hearing date of October 15, replacing the original date of January 14. Kraken's legal chief Marco Santori said the ruling underscores the need for Congress to provide a clear framework for market structure, reflecting industry concerns about the SEC's regulatory approach.