Kraken’s Motion to Dismiss SEC Lawsuit Denied by Judge

On August 23, 2024, U.S. District Judge William H. Orrick denied crypto exchange Kraken’s motion to dismiss a lawsuit filed by the Securities and Exchange Commission (SEC). The SEC alleges that some of Kraken’s cryptocurrency transactions could be classified as investment contracts and thus fall under securities regulations.

According to the received evidence, Judge Orrick decided that Kraken generated more than $43,000,000 in revenue for the trading fees and allowed almost any transaction between 2020 and 2021. On November 20, 2023, the SEC filed a lawsuit against Kraken, charging the company with being an unregistered securities exchange and mismanaging users’ assets and data.

Particularly, the SEC targets some tokens, which Kraken lists for trading. These include Cardano’s ADA, Cosmos’s ATOM, Filecoin’s FIL, Solana’s SOL, and Near Network’s NEAR, stating that all of them fall under the securities classification. Judge Orrick relied on the Howey test – a legal criteria involving a 1946 case in the United States Supreme Court that seeks to identify whether an asset is a security.

Kraken to Respond to SEC Complaint as New Trial Date Set

While making their submissions, Kraken’s legal advisers claimed that the SEC, as a regulatory body, was extending its mandate. They argued that the powers they granted to the SEC should not embrace all investment in speculation. The Chairman of the Securities Exchange Commission, Gary Gensler, has said and often emphasizes that most of the tokens can be categorized as securities. The SEC has also filed legal actions against other significant crypto companies under his leadership, including Binance, Coinbase, and Uniswap.

The judge also pointed out that Binance and Coinbase have also encountered similar issues in their cases with the SEC. Kraken now has 20 days to respond to the SEC’s complaint and a new trial date has been scheduled for October 15, 2024, in place of the previous date of January 14, 2025. In his turn, Kraken’s Chief Legal Officer, Marco Santori, expressed his discontent on the X platform with the SEC’s actions. He commented on Congress to establish more adequate legislation for the crypto space to encourage customer protection alongside the industry’s growth.