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Judge Denies Kraken’s Appeal in SEC Lawsuit over Cryptocurrency Regulations

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icon 19/11/24
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Judge Denies Kraken’s Appeal in SEC Lawsuit over Cryptocurrency Regulations

A federal judge in California has denied crypto exchange Kraken’s request to appeal his earlier ruling, which allows a lawsuit from the Securities and Exchange Commission (SEC) to proceed. Judge William Orrick stated that granting the appeal would only prolong the resolution of the case. In his order dated November 18, he articulated that the SEC has sufficiently demonstrated that the cryptocurrencies traded on Kraken qualify as investment contracts under established legal criteria and, therefore, fall under securities regulations.

In his ruling, Judge Orrick noted that although the SEC’s allegations are plausible regarding potential securities violations, it is through the discovery process that the court will ultimately determine if Kraken’s transactions truly satisfy all elements of the relevant legal test. Kraken sought the judge’s permission to appeal a previous ruling from August that dismissed its motion to dismiss the SEC’s lawsuit. The exchange maintained that significant legal ambiguities existed concerning the definition of investment contracts and whether an investment contract necessitates formal agreements or ongoing obligations post-sale.

However, Judge Orrick countered that Kraken failed to reference any recent case law supporting its claims regarding the need for contractual formalities or post-sale commitments to classify something as an investment contract. He pointed out that several courts have addressed similar issues and reached conclusions contrary to Kraken’s arguments.

This ruling followed a request from the SEC to dismiss three of Kraken’s defenses, asserting that the current legal framework clearly defines investment contracts and that Kraken had been adequately informed of these regulations. The SEC filed its lawsuit against Kraken in November 2023, alleging that the exchange did not register properly as an exchange, broker, dealer, and clearing agency. Further commentary from Kraken’s legal team is not yet available.

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