The SEC’s lawsuit against Kraken yielded a partially favorable outcome

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A defence of the cryptocurrency exchange, which contended that Congress had not awarded the SEC authority over cryptocurrencies, was dismissed by California federal judge William Orrick on January 24.

Kraken had invoked the “main concerns doctrine” to substantiate its assertion. This legal principle posits that government agencies are prohibited from exercising powers that have not been expressly delegated to them by Congress.

Judge Orrick observed that the SEC was not asserting “extremely consequential powers beyond what Congress could reasonably be understood to have granted it.” He underscored the potential for this doctrine to have a substantial effect on the American economy in cases.

Orrick stated, “Cryptocurrency is a financial instrument that is expanding; however, it has not yet reached a level of economic significance that is reasonably comparable to the American energy market or the billions of dollars of outstanding student loan debt.”

He also acknowledged Kraken’s argument regarding the SEC’s failure to provide “fair notice” of alleged legal violations, asserting that the SEC must prove that an ordinary entity in Kraken’s position would comprehend that transactions on its platform qualify as investment contracts under the Howey test.

In November 2023, the Securities and Exchange Commission (SEC) accused Kraken of operating fraudulently as a clearing agency, broker, dealer, and exchange by offering unregistered securities. The agency also asserted that Kraken has been combining its own assets with customer funds.

Kraken filed a motion to dismiss the SEC’s litigation in February 2024, contending that its outcome could establish a risky precedent for regulatory authority. A U.S. federal court rejected Kraken’s motion to dismiss the SEC’s claims in August.

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