Judge Denies Appeal, Case Moves Forward

Who would have seen this coming? Kraken, one of the largest cryptocurrency exchanges, has hit a legal roadblock.

A California District Court judge has just dismissed the exchange’s appeal attempt, allowing the SEC’s lawsuit to move forward. On November 18, Judge William Orrick ruled that Kraken’s request for an interlocutory appeal would only delay the case, not resolve it. This ruling adds more pressure to an already tense legal battle.

How much will THIS new development hurt the crypto markets? Dive in to find out.

SEC’s Allegations Against Kraken

The SEC claims Kraken sold unregistered securities by trading and selling crypto assets. According to the SEC, these assets qualify as investment contracts under the Howey test. The SEC specifically names assets like ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL as part of the issue, arguing that they should be regulated as securities.

Judge Orrick agreed with the SEC, stating that the agency had sufficiently backed its claims. He noted that further discovery would be needed to determine whether Kraken’s operations meet all the criteria of the Howey test.

Kraken’s Failed Appeal Effort

In September, Kraken sought permission to appeal a previous ruling that denied its motion to dismiss the SEC case. The exchange argued there were unresolved questions about whether investment contracts require formal agreements or post-sale obligations. Kraken also claimed there were different interpretations of securities laws that needed to be addressed by a higher court.

However, Judge Orrick dismissed these arguments, stating that no court since the Howey case has ruled that an investment contract requires formal agreements or post-sale obligations. He also pointed out that several courts had already rejected Kraken’s legal arguments.

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SEC Tightens Its Case

The SEC recently moved to strike three of Kraken’s defenses. The agency argued that current laws clearly define investment contracts and that Kraken was given enough notice to understand compliance requirements. The SEC also claimed Kraken’s defenses could lead to unnecessary and burdensome discovery, a point Judge Orrick seemed to consider in his ruling.

What’s at Stake for Kraken and the Crypto Industry?

The SEC’s lawsuit, filed in November 2023, accuses Kraken of operating without registering as an exchange, broker, dealer, or clearing agency. The outcome of this case could have significant implications for the broader crypto industry, as it will determine whether Kraken’s crypto operations violate securities laws.

Despite its ongoing legal battle, Kraken is moving ahead with plans to launch its own blockchain, “Ink,” in early 2025. The blockchain will target both retail and institutional users, showing that Kraken is planning for the future despite current challenges.

Kraken has not yet issued a public response to the judge’s latest decision.

With regulatory challenges mounting, Kraken’s next moves will be closely watched! You, meanwhile, can stay tuned to Coinpedia for updates.