SEC's Lawsuit Against Kraken Moves Forward: California Judge's Ruling Explained

The U.S. Securities and Exchange Commission's (SEC) lawsuit against the cryptocurrency exchange Kraken will proceed to trial, following a ruling by a California judge. The SEC alleges that Kraken failed to register as a broker, exchange, or clearinghouse, violating federal securities laws.

Key Takeaways

• A federal judge ruled that the SEC's allegations against Kraken are plausible, allowing the lawsuit to proceed to trial.

• The SEC's lawsuit claims Kraken violated federal securities laws by not registering as a broker, exchange, or clearinghouse.

• Similar lawsuits have been filed against other major crypto exchanges like Binance and Coinbase.

Background of the Case

The SEC filed a lawsuit against Kraken in the Northern District of California last November. The complaint alleges that Kraken violated federal securities laws by failing to register with the SEC as a broker, clearinghouse, or exchange. The SEC is seeking a permanent injunction to prevent further securities violations, as well as disgorgement of Kraken's "ill-gotten gains" and other civil penalties.

Judge's Ruling

On August 23, U.S. District Court Judge William H. Orrick ruled that the SEC had "plausibly alleged 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." This ruling means that Kraken's motion to dismiss the case has been denied.

Kraken's Defense

Kraken had filed a motion to dismiss the case in February, arguing that the SEC had failed to state a claim. Kraken contended that cryptocurrencies do not meet the definition of a security as defined by the Howey Test. Judge Orrick partially agreed with Kraken, ruling that the cryptocurrencies named by the SEC were "not themselves investment contracts." However, he noted that the contracts surrounding the sale of these cryptocurrencies could be considered investment contracts.

Implications for the Crypto Industry

Kraken is not the only major crypto exchange facing legal challenges from the SEC. Similar lawsuits have been filed against Binance and Coinbase, both of which also failed in their attempts to get the cases dismissed. The judge's ruling in Kraken's case could set a precedent for how other cases are handled.

Next Steps

Both parties are required to submit a Joint Statement by October 8, which will include a proposed case schedule and trial date. The outcome of this trial could have significant implications for the regulatory landscape of the cryptocurrency industry in the United States.

Conclusion

The SEC's lawsuit against Kraken is a significant development in the ongoing regulatory scrutiny of the cryptocurrency industry. As the case proceeds to trial, it will be closely watched by other crypto exchanges and industry stakeholders.

Sources

• SEC’s Case Against Kraken Will Proceed to Trial, California Judge Rules, CoinDesk.

• El caso de la SEC contra Kraken irá a juicio, según un juez de California, CoinDesk.

• O caso da SEC contra a Kraken irá a julgamento, decide juiz da Califórnia, CoinDesk.

• Il caso della SEC contro Kraken andrà a processo, decide un giudice della California, CoinDesk.

• L’affaire de la SEC contre Kraken sera jugée, selon un juge californien, CoinDesk.