Judge Dismisses Kraken’s Motion to Appeal SEC Lawsuit
A federal judge in California has denied Kraken’s request to appeal a ruling, allowing the US Securities and Exchange Commission (SEC) lawsuit against the cryptocurrency exchange to proceed. The court determined that an immediate appeal would delay the resolution of the case.
Judge William Orrick, from the US District Court for the Northern District of California, dismissed Kraken’s motion for an interlocutory appeal in an order issued on November 18. He confirmed that the SEC had adequately alleged that cryptocurrencies traded on Kraken could qualify as investment contracts under the Howey Test, thus subjecting them to federal securities laws.
Judge Orrick stated, “While the SEC has plausibly alleged its theory of securities violations against Kraken, only discovery will establish whether the transactions on Kraken meet all the Howey elements,” highlighting the necessity of a complete record before reaching definitive legal conclusions.
The SEC’s Case against Kraken
Kraken sought permission to contest Orrick’s previous decision that rejected its motion to dismiss the case. The exchange contended that unresolved legal questions regarding the definition of investment contracts justified an early appeal, potentially expediting litigation.
However, the judge noted that Kraken did not provide compelling case law to support its position. Orrick remarked, “Several courts have addressed these issues and disagreed with Kraken’s position,” dismissing claims that contractual formalities or post-sale obligations were crucial for determining if a transaction constituted an investment contract.
The SEC initiated its lawsuit against Kraken in November 2023, accusing the exchange of operating as an unregistered securities exchange, broker, dealer, and clearing agency. The regulator also claimed that Kraken violated securities laws by failing to register the cryptocurrencies traded on its platform. The SEC seeks civil penalties, disgorgement of profits, and permanent injunctions to prevent future violations.
Kraken Denies SEC’s Charges
Kraken refutes the allegations, asserting that it has not violated any securities laws. Despite attempts to challenge the SEC’s claims, the judge’s recent decision allows the case to advance to discovery, where both parties will collect evidence to substantiate their positions.
This ruling marks a pivotal moment in the SEC’s ongoing enforcement actions against the crypto industry. The outcome could set a precedent for the classification and regulation of cryptocurrencies in the United States, affecting other exchanges and crypto projects.
Kraken must now prepare for the next phase of litigation as it defends its business practices amid increasing regulatory scrutiny.