• U.S. crypto exchange Kraken fails to dismiss a lawsuit filed against it by the SEC.

  • The SEC alleged that some of the transactions made by Kraken are subject to securities law.

  • The Judge states that an asset can be considered a security if it passes the Howey Test.

Crypto exchange Kraken faces another lawsuit filed by the U.S. Securities and Exchange Commission (SEC) on Friday. The Security Commission alleged that some of the transactions made by the exchange constitute security and must come under the securities laws. Kraken’s motion to dismiss the lawsuit was denied.

SEC Targets Kraken’s Transactions

The SEC alleged that the crypto firm acting as a broker, dealer, exchange, and clearing agent is not registered with the Commission. It insisted that some of the transactions made by the firm should be considered investment contracts, implying that they are securities and must comply with the Securities laws. 

In an opinion statement, U.S. District Judge William H. Orrick, San Francisco Federal Court, stated that Kraken accepted that it was not registered with the SEC. The reason is that the platform does not involve securities, so it does not fall under the SEC’s regulations and, therefore, does not require registration. 

SEC Raises Concerns Over Solana ETFs, Halts Approval Process Kraken Motion Dismissed

However, considering the SEC’s allegations of Kraken’s transactions and the agency’s motion to dismiss the lawsuit, Judge Orrick denied the motion and added that the crypto firm should respond to the complaint within 20 days. The trial date will be announced on October 15 instead of January 14. 

Celebrating the momentary joy against the SEC, a Kraken lawyer posted the win on his X profile. He stated that the Kraken tokens are not securities and added that the SEC cannot continue to regulate the industry through enforcement. A final verdict is yet to be made.

Today, the Federal Court for the Northern District of California ruled, as matter of law, that none of the tokens trading on Kraken are securities.

This is a significant win for Kraken, for the principle of clarity and for crypto users everywhere. It also confirms Kraken’s…

— Marco Santori (@msantoriESQ) August 23, 2024

Debate on Kraken’s Tokens

Orrick implied that although cryptocurrency is a financial instrument, the principles driving the SEC’s attempt to assert authority are not new. Additionally, he suggested that the Howey Test can help determine whether an asset is a security. Interestingly, the SEC filed a similar crypto exchange lawsuit in November 2023. 

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