According to Kraken’s Chief Legal Officer Marco Santori, in the Kraken Lawsuit, the SEC unqualifiedly lost on its "tokens are securities" theory, and will not be permitted to rely on it going forward, dealing a major blow to the agency in its bid to classify crypto tokens as securities.

6/ The SEC unqualifiedly lost on this “tokens are securities” theory, and will not be permitted to rely on it going forward. Instead, it will need to prove, for every alleged transaction on Kraken, that the Howey Test factors are satisfied. They aren’t, and we look forward to…

— Marco Santori (@msantoriESQ) August 23, 2024

In November 2023, the SEC charged Kraken with operating an unregistered securities exchange, broker, dealer and clearing agency. Kraken had requested that the judge dismiss the SEC action.

Kraken, like Ripple, maintained that the SEC did not have authority over digital assets. In a recent decision on Kraken's motion to dismiss the SEC claim, the court made the same distinction as in the Ripple case: A token is not a security, but agreements around a token could be.

The decision in SEC v Kraken today is another endorsement of Judge Torres’ reasoning in the SEC v Ripple decision that the token itself is not a security. https://t.co/jrp4ZpUJyv pic.twitter.com/UbaoUb8MJd

— bill morgan (@Belisarius2020) August 24, 2024

This legal statement caught the attention of the XRP community. Bill Morgan, a crypto lawyer and XRP enthusiast, commented in an X post that the decision in the Kraken lawsuit was another endorsement of Judge Torres’ reasoning in the SEC v. Ripple decision that the token itself is not a security.

Ripple ruling hailed as major victory for industry

The Ripple decision, which determined that XRP was only covered by securities law when sold to institutional investors, was heralded as a significant victory for the industry.

Ripple won another victory earlier this month when it was sentenced to pay a $125 million civil penalty for sales to institutional investors, which was a fraction of the almost $2 billion in fines sought by the SEC.

card

Based on SEC Chair Gary Gensler's theory, most digital tokens are unregistered securities and should be subject to SEC monitoring. Gensler is harshly critical of cryptocurrency exchanges and the digital asset market for apparent noncompliance.

Although the court denied Kraken’s motion to dismiss the SEC lawsuit, Kraken's CLO Marco Santori hailed the recent decision as a significant win. In a tweet, Santori wrote, "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."