Kraken Fails to Dismiss SEC Lawsuit; Judge Cites Investment Contract Claim

Kraken has been unable to resolve a lawsuit filed by the U.S. Securities and Exchange Commission (SEC). A federal judge said that certain cryptocurrency transactions on Kraken’s platform could be considered investment contracts. Therefore, Kraken is expected to defend itself against the SEC’s claims before September this year.

Judge Upholds SEC Suit Against Kraken Exchange

The SEC sued Kraken, alleging that the company engaged in the business of being an unregistered national securities exchange, broker-dealer, and clearing agency. The agency argues that certain tokens, including Cardano’s ADA and Solana’s SOL, are securities. Judge William H. Orrick sided with the SEC, stating that the Howey test is relevant to Kraken’s business model.

Kraken earned more than $43 million in revenue between 2020 and 2021, including trading fees. The SEC holds that the absence of restrictions on asset transactions and Kraken’s alleged co-mingling of customers’ funds favors their case. The SEC has assumed that Kraken should be subject to its regulation like any other financial services firm.

Courts Uphold SEC’s View on Crypto Securities

Judge Orrick also dismissed Kraken’s assertion that the SEC exceeded its jurisdiction, noting that the concepts on which the SEC based its actions are clear. The Howey test, which is central to this case, has been used for a long time to define what constitutes security. The judge pointed out that Kraken, like Binance and Coinbase, did not manage to have such suits dismissed by the SEC.

It can be seen as the courts’ attempt to address the cryptocurrency industry under the existing securities laws. The SEC Chair, Gary Gensler, stated that most digital tokens are securities offered without a registration statement. The decision may indicate that courts will still defend the SEC’s more expansive regulatory view.

Kraken has 20 days to answer the SEC’s complaint, and the new trial date is scheduled for October 15. The initial trial date set for January 14 has been vacated, which shows that the court wants to handle the case as soon as possible. The ongoing lawsuit presents legal issues common to other large cryptocurrency exchanges, such as Kraken.

This legal dispute may affect the crypto industry as regulatory pressure grows. The SEC’s enforcement actions against Kraken, Binance, and Coinbase indicate a more rigorous regulatory landscape.

Also Read: Australian Regulator Wins Against Kraken’s Operator Bit Trade