Kraken Under the SEC Lawsuit Fire!

Kraken, one of the major cryptocurrency exchanges, was sued by the SEC last November in the Northern District of California. The ongoing legal battle between cryptocurrency exchange Kraken and the SEC has taken a significant turn. On August 23, U.S. District Court Judge William H. Orrick of the Northern District of California ruled that the SEC’s lawsuit against Kraken will proceed to trial, rejecting its motion to dismiss the case.

History of Kraken Lawsuit

The SEC sued one of the biggest crypto exchanges, Kraken in November 2023. It argued that the crypto exchange has violated federal securities law as it did not register with the agency as a broken or exchange. In its complaint, the SEC requested that strict penalties should be charged against Kraken and it should be prohibited from further securities violations. This lawsuit is a part of the SEC’s major crackdown on crypto exchanges for similar violations. Binance and Coinbase just like Kraken tried to dismiss their respective cases but failed.

The Ruling

The US District Court states that according to the SEC, at least some of the crypto transactions on Kraken platform are investment contracts and hence they are securities. And as per the securities law, they should be registered under the SEC. This decision is based on the Howey Test, however Kraken argued that cryptos do not meet this test criteria. And for this reason, cryptocurrencies should not be classified or treated as securities. Kraken is not the first crypto exchange to provide this statement, however the SEC is not satisfied with it. It wants Kraken to get civil penalties.

The 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 as securities. The distinction is very critical  as it is similar to the case involving Ripple labs and XRP token. Among all these confusions, the Judge allowed this case to proceed.

Implications for Kraken

The Chief Legal Officer of Kraken exchange, Marco Santori shared his joy of partial victory on social media platform X (formerly Twitter). According to him, this is a significant win for Kraen as the ruling cleared that the tokens trading on the exchange are not securities. 

What’s Next

The SEC vs Crypto legal lawsuits have a long history. It all started with the SEC filing a lawsuit against Ripple Labs for selling their XRP token during ico round. Over the years, the SEC has filed similar cases for multiple crypto projects and exchanges. Kraken exchange is its latest victim. It would be interesting to see what happens next as the court has ordered both the parties to submit a joint statement by October 8th. The statement will also include a proposed case schedule and trial dates.