Kraken Faces Legal Setback: Judge Denies Appeal in SEC Lawsuit

The post Kraken Faces Legal Setback: Judge Denies Appeal in SEC Lawsuit appeared first on Coinpedia Fintech News

In a significant setback for Kraken, a California District Court judge has denied the exchange’s attempt to appeal a previous decision allowing the SEC’s lawsuit to proceed. Judge William Orrick ruled on Nov. 18 that Kraken’s motion for interlocutory appeal would only delay litigation without advancing its resolution.

The SEC alleges that Kraken sold unregistered securities by trading and selling crypto assets, which the regulator contends qualify as investment contracts under the Howey test. Going into the details, the SEC widely claimed that Kraken allows trading of crypto assets like ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL, asserting that these constitute investment contracts subject to securities laws. 

Judge Orrick upheld this view, stating the SEC had adequately demonstrated its claims and that discovery would be necessary to fully assess whether Kraken’s operations meet all the elements of the Howey test.

Kraken’s Legal Arguments Rejected

In September, Kraken sought permission to appeal the August ruling that denied its motion to dismiss the SEC case. The exchange argued there were unresolved questions about whether an investment contract requires formal agreements or post-sale obligations. It also claimed there was room for differing interpretations of securities laws that a higher court should address.

Judge Orrick, however, dismissed these arguments, noting that no court since Howey has ruled that contractual formalities or post-sale obligations are prerequisites for an investment contract. He further highlighted that multiple courts have already refuted Kraken’s legal stance.

SEC Tightens Its Case

The SEC recently moved to strike three of Kraken’s defenses, asserting that existing laws clearly define investment contracts and provided Kraken with sufficient notice of compliance requirements. The regulator argued that Kraken’s defenses could lead to irrelevant and burdensome discovery efforts, which Judge Orrick appeared to consider in his ruling.

Background of the Case

The SEC’s lawsuit, filed in November 2023, accuses Kraken of failing to register as an exchange, broker, dealer, or clearing agency. The ongoing litigation is set to determine whether Kraken’s crypto operations violate securities laws—a ruling that could have far-reaching implications for the broader crypto industry.

What Next? 

Moreover, despite the regulatory issues, Kraken plans to launch its own blockchain “Ink,” in early 2025 to cater to both retail and institutional users. 

Kraken has yet to issue a public response to the judge’s latest decision. As the case progresses, it remains a crucial legal battle in the SEC’s broader enforcement efforts against crypto platforms.