Judge William H. Orrick, a federal court judge in the U.S., recently shot down Kraken’s attempt to toss out the SEC’s claims. The SEC had been trying to argue that some of the crypto transactions on Kraken were investment contracts, which would make them securities.
And if they’re securities, they would fall under the SEC’s rules and regulations. But the judge wasn’t fully buying what the SEC was selling. Instead, he decided the SEC’s argument had some merit—enough to keep the case alive, at least.
But Kraken’s chief legal officer, Marco Santori, isn’t seeing this as a loss. Far from it. According to him, the court’s decision is more like a partial win for Kraken and the crypto community.
Marco says the court basically gave the SEC a slap on the wrist for its “tokens are securities” argument. “None of the tokens trading on Kraken are securities,” he declared.
Marco added that the court recognized that while a token itself isn’t a security, how that token is used or what agreements are made around it might be.
Marco Santori
He said the ruling backs Kraken’s position that the SEC’s “crypto asset security” theory is, in his words, “unclear at best and confusing at worst.”
And it looks like the judge agreed to some extent. The court called out the SEC’s tactics, saying they often twisted Kraken’s words to make it sound like they believed a “written contract” was required for something to be a security.
But that’s not Kraken’s stance, and the judge didn’t let the SEC get away with it. However, the judge did let the case go forward to discovery. What does that mean? Well, it means the SEC can’t just claim that every token on Kraken is a security.
They’ll need to dig deep and prove it, transaction by transaction. And that’s going to be a long, messy process.
The court’s decision forces the SEC to prove each transaction on Kraken meets the criteria of the Howey Test—a standard used to define what counts as an investment contract.
Marco is confident the SEC won’t be able to prove their case. He said:
“We look forward to proving this in discovery. Kraken will fight and Kraken will win.”
If the SEC wants to keep up with its current approach of regulating by enforcement, they’re looking at a massive pile of work. Think about it: millions, maybe billions, of transactions could be scrutinized under this ruling.
That’s a nightmare scenario for both the SEC and any crypto company in their crosshairs. Marco took the chance to throw more shade at the SEC’s whole strategy, calling it out as ineffective and overly aggressive. He argued that:
“To deliver clarity to the industry, to protect consumers and foster the growth of blockchain technology, Congress must pass a comprehensive market structure framework.”
Meanwhile, Judge Orrick, in his opinion, did note that Kraken has made a tidy sum from its trading activities—over $43 million between 2020 and 2021.
The SEC pounced on this point, suggesting that the way Kraken makes its money—charging fees and having few restrictions on trades—could indicate that some of these transactions are actually securities.
But the court didn’t fully buy that argument without more evidence.
