In a significant legal setback for one of the crypto industry’s largest exchanges, a California judge has ruled governed that cryptocurrency platform Kraken is facing a lawsuit filed by the US Securities and Exchange Commission (SEC).
Squatting faces tough legal battle
The SEC alleges that Kraken operated an unregistered securities exchange, a charge the company has vehemently denied. But in a ruling Friday, U.S. District Judge William H. Orrick in San Francisco found the SEC’s argument that certain crypto coins The securities sold on Kraken’s platform constitute ‘investment contracts’ and are therefore ‘plausible’ as securities subject to the agency’s supervision.
The ruling denies Kraken’s motion to dismiss the SEC’s lawsuit, which was filed in November 2022. Judge Orrick stated in his opinion:
The SEC has established that at least some of the cryptocurrency transactions that Kraken facilitates on its network constitute investment contracts, and therefore securities, and are accordingly subject to securities laws.
Kraken argued, similar to the defense blockchain payments company Ripple has mounted in its ongoing battle with the SEC, that the agency has no jurisdiction over digital assets.
The company argued that as an exchange or “secondary market” platform, it is subject to different regulations than the direct issuance of tokens, as was the case in the SEC’s actions against Terraform Labs.
However, Judge Orrick rejected Kraken’s attempt to draw a distinction, ruling that the SEC’s claims against the exchange were “admissible.” This is a significant victory for the regulator, which under Chairman Gary Gensler has taken an increasingly aggressive stance against the crypto industryarguing that most digital tokens are unregistered securities.
Escalating crypto crackdown
The ruling in the Kraken case follows a series of other SEC rulings in other high-profile crypto cases. While a federal judge in Manhattan ruled last year that Ripple’s XRP token sale While the SEC’s jurisdiction over securities trading for the general public did not fall under its jurisdiction, other courts have sided with the agency, including in lawsuits against Terraform Labs and Coinbase.
The Ripple ruling, which limited the SEC’s authority to cover XRP sales to institutional investors, was seen as a major victory for the crypto industry. However, the exchange was recently ordered to pay a $125 million civil penalty — a fraction of the nearly $2 billion the SEC had sought.
For Kraken, the California court’s refusal to dismiss the SEC’s lawsuit means the exchange now faces a lengthy legal battle over the regulatory status of the crypto assets traded on its platform.
At the time of writing, BTC was trading at $63,647, up over 4% in the 24-hour time frame.
Main image of DALL-E, chart from TradingView.com