Court Rejects Kraken’s Bid to Dismiss SEC Lawsuit

Highlights:

• A United States court recently rejected Kraken’s bid for an appeal in its legal dispute with the U.S. SEC.
• The court case that began in November 2023 has negatively impacted Kraken’s outlook.
• The CLO at Kraken has reacted to the latest court decision, tagging it as a significant win for the exchange despite an unfavorable ruling.

In what could be deemed another significant setback for San Francisco’s based exchange, Kraken, a U.S. Federal Court, has rejected its bid to dismiss the Securities and Exchange Commission (SEC) lawsuit against the exchange. Interestingly, Kraken’s unsuccessful appeal is coming a few hours after an Australian Federal Court ruled against the trading platform in its legal dispute with the Australian Securities and Investments Commission (ASIC).

🚨 BREAKING: KRAKEN FACES SEC LAWSUIT OVER UNREGISTERED OPERATIONS

Bloomberg reports that the SEC is suing cryptocurrency exchange Kraken for not registering as a crypto exchange.

This legal action highlights the ongoing regulatory crackdown in the crypto industry. pic.twitter.com/8FCFuTofJo

— JAKE (@JakeGagain) August 23, 2024

For context, Kraken’s failed court outing with the ASIC ended with the presiding judge ruling against Kraken’s Bit Trade. Notably, Bit Trade sanction emanated from its operation modalities without a recognized license. Similarly, Kraken’s failed bid with the U.S. regulators stemmed from facilitating the sales of unregistered security crypto assets, as alleged by the SEC.

Kraken’s Past History with U.S. SEC

Kraken’s sour relationship with the United States SEC dates back to November 2023. Interestingly, Kraken was not the only trading platform implicated in onboarding unregistered securities. Leading exchanges, including Coinbase and Binance, were also on the SEC radar as of 2023.

During the court battles in 2023, Kraken and other affected exchanges argued that the SEC was overstepping in its jurisdiction. However, it did little or nothing to salvage the strained relationship, resulting in a full-blown legal dispute. Consequently, Kraken has remained under tight scrutiny since November 2023. Additionally, it has placed the trading platform in a disadvantaged state relative to its peers, with meager regulatory issues.

Court Rejects Kraken’s Bid in the Latest Outing Involving the SEC

On August 23, Kraken appeared in court again against the U.S. SEC. However, the outing was unsuccessful, with the presiding judge, William H. Orrick, ruling against the exchange’s appeal. Part of a released court statement read thus, “But the SEC has 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. The motion is DENIED.”

It is worth noting that in-depth details of the SEC lawsuit entail customers’ assets and information mismanagement. Meanwhile, some crypto assets implicated in the lawsuit as securities include Solana (SOL), Cardano (ADA), Sandbox (SAND), Cosmos (ATOM), and Decentraland. (MANA), Polygon (MATIC), etc. Interestingly, the whole saga emanated from the Howey test application. The test is a legislative guideline from a 1946 United States Supreme Court hearing. Judges adopt it to determine the criteria for qualifying transactions as investment contracts.

Kraken’s CLO Reacts to the Rejected Appeal Bid

Marco Santori, Chief Legal Officer (CLO) at Kraken, has reacted to the court’s ruling. Taking to his X handle, Santori spotlighted inconsistencies in the court’s decision, tagging it as a significant win for Kraken. Part of the CLO’s tweet read thus, “Today, the Federal Court for the Northern District of California ruled, as a matter of law, that none of the tokens trading on Kraken are securities. This is a significant win for Kraken, clarity’s principle, and crypto users everywhere.”

Going further, after highlighting several shortcomings In the court’s ruling, the legal expert asserted that the SEC lacks the moral right to regulate crypto by enforcement. However, he suggested a practical solution to salvage the dwindling crypto regulatory standards. “To deliver clarity to the industry, to protect consumers, and foster the growth of blockchain technology, Congress must pass a comprehensive market structure framework,” the CLO added.

Today, the Federal Court for the Northern District of California ruled, as matter of law, that none of the tokens trading on Kraken are securities.

This is a significant win for Kraken, for the principle of clarity and for crypto users everywhere. It also confirms Kraken’s…

— Marco Santori (@msantoriESQ) August 23, 2024