Ripple's Chief Legal Officer Stuart Alderoty recently took to X to highlight the recent setback for the SEC in its lawsuit against Kraken. Alderoty tweeted, "Another court, this time in the Kraken case, confirms there's no such thing as a crypto asset security. Bad news for the SEC, whose entire regulation-by-enforcement strategy hinges on that failed premise."

Another court, this time in the Kraken case, confirms there's no such thing as a “crypto asset security.” Bad news for the SEC, whose entire regulation-by-enforcement strategy hinges on that failed premise. https://t.co/gSSOmGDQQU

— Stuart Alderoty (@s_alderoty) August 24, 2024

According to Kraken’s Chief Legal Officer Marco Santori, 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 tokens as securities.

Kraken’s chief legal officer hailed the ruling as a finding that none of the tokens trading on Kraken are securities.

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The court's decision in the Kraken case mirrors a similar distinction made in the Ripple case: While a token itself is not considered a security, agreements surrounding the token could potentially be classified as such. This nuanced understanding is why the court allowed the case to proceed to discovery, despite rejecting the SEC's broader claims.

Kraken CLO hails ruling as significant win for Kraken

Despite the court allowing the SEC lawsuit against Kraken to proceed, Kraken’s CLO Marco Santori hailed the ruling, which rejected SEC's broader claims on tokens being "crypto asset security," to be a significant win.

"The court found the SEC’s self-serving invention of the crypto asset security concept to be unclear at best and confusing at worst," Santori noted stating that the court called out the SEC’s straw man tactics on its consistent mischaracterization of Kraken’s position as requiring a “written contract” for there to be a security.

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However, Kraken must face the SEC lawsuit accusing it of operating an unregistered securities exchange, a judge ruled. "The SEC has plausibly alleged that at least some of the cryptocurrency transactions that Kraken facilitates on its network constitute investment contracts, and therefore securities, and are accordingly subject to securities laws," U.S. District Judge William H. Orrick wrote.

Kraken had requested the judge to dismiss the case filed by the SEC in November.