The Court ruled in favor of the SEC, asserting that Kraken is conducting business as an unregistered securities exchange.
Kraken, one of the earliest cryptocurrency exchanges, is currently under the scrutiny of the U.S. Securities and Exchange Commission (SEC). A federal magistrate has recently upheld the SEC’s accusation that Kraken operates as an unregistered securities exchange.
Kraken’s legal difficulties commenced in November 2023 when the Securities and Exchange Commission (SEC) submitted a lawsuit against the exchange, alleging it of facilitating unregistered securities transactions.
The SEC, under the leadership of Chair Gary Gensler, has been particularly assertive in its assertion that the majority of digital tokens are securities and, as such, are subject to its regulatory jurisdiction.
Kraken, like numerous other crypto platforms, contended that the SEC was exceeding its authority by extending its jurisdiction to digital assets.
Nevertheless, Kraken’s motion to dismiss the lawsuit was recent denied by U.S. District Judge William H. Orrick.
Judge Orrick stated in his opinion that the SEC had “plausibly alleged” that certain cryptocurrency transactions that Kraken facilitates could be classified as investment contracts, rendering them subject to securities laws.
This decision is a significant setback for Kraken, which had established itself as a resolute advocate against what it perceives as regulatory overreach.
The SEC’s lawsuit also accused Kraken of failing to adequately safeguard customer information and neglecting customer assets, such as co-mingling them with its own.
The case specifically references a number of digital tokens, including ADA from Cardano, ATOM from Cosmos, and SOL from Solana, among others.
The application of the Howey test, a legal standard that stems from a 1946 U.S. Supreme Court case, is the critical factor in determining whether specific transactions constitute as investment contracts.
Kraken’s case is not an isolated incident; rather, it is a component of the SEC’s more extensive assault on cryptocurrency. Indeed, there is a significant crackdown on cryptocurrency.
The agency has initiated comparable litigation against prominent crypto firms, such as Binance and Coinbase, which have also encountered difficulty in dismissing the allegations against them.
The SEC has stepped up its efforts to incorporate the crypto market into its regulatory framework under Gensler’s leadership, claiming that these measures are essential for the protection of investors and the maintenance of market stability.
