SEC Partially Wins Against Kraken in Ongoing Crypto Lawsuit
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The U.S. Securities and Exchange Commission (SEC) gained partial success in its ongoing lawsuit against crypto exchange Kraken. A California federal judge recently rejected Kraken’s argument under the “major questions doctrine,” a defense that questioned whether Congress gave the SEC jurisdiction over cryptocurrency.
Judge Rules on Key Arguments in Kraken’s Case
In his ruling on January 24, Judge William Orrick stated that the major questions doctrine only applies in cases where government agencies exercise “highly consequential power” beyond what Congress delegated.
He explained that cryptocurrency is an evolving financial market but does not yet hold the same economic significance as sectors like energy or student loans.
“Cryptocurrency is a growing financial instrument, but it has not risen to a level of economic import that is reasonably comparable to the American energy market, or billions of dollars of outstanding student loan debt,” Orrick said.
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The SEC lawsuit, initially filed in November 2023, accuses Kraken and its associated entities, Payward Inc. and Payward Ventures, of offering unregistered securities.
The agency claims the exchange has been operating unlawfully since 2018 without registering as a securities exchange.
Kraken also faced a setback when Judge William Orrick rejected its motion for an interlocutory appeal on November 18, 2024. The exchange argued that significant securities law questions needed higher court intervention.
Kraken’s “Fair Notice” Defense Still in Play
Although the SEC successfully eliminated the “major questions doctrine” defense, Kraken retains its “fair notice” argument. Judge Orrick acknowledged that Kraken had sufficiently argued it was not adequately informed by the SEC about violations.
“The SEC would have to show that any ordinary entity in Kraken’s position would understand that the Howey test, as applied to the secondary market transactions on Kraken’s platform, establishes that those transactions are investment contracts,” he stated.
The SEC lawsuit forms part of a broader regulatory crackdown on the crypto industry. Similar cases have been brought against major exchanges such as Coinbase, Binance, and Ripple.
Like Kraken, these companies have cited the major questions doctrine, arguing that Congress has not granted the SEC authority to regulate cryptocurrency markets.
This legal battle comes amid growing tension between the crypto industry and U.S. regulators.
In August 2023, a federal court denied Kraken’s motion to dismiss the SEC lawsuit, allowing the case to proceed. Kraken countered in September with defenses questioning the agency’s authority, leading to the current ruling.
Notably, the SEC has established a crypto task force to create a regulatory framework for digital assets. This initiative is led by Commissioner Hester Peirce, often regarded as a crypto-friendly advocate within the agency.
