Court denies Kraken’s motion to dismiss SEC lawsuit
The SEC alleges Kraken is operating an unregistered securities exchange.
A United States federal court denied crypto exchange Kraken’s motion to dismiss a Securities and Exchange Commission lawsuit alleging Kraken is operating an unregistered securities exchange, according to an Aug. 23 court filing.
In November, the SEC charged Kraken with “operating [a] crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.”
“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,” according to the opinion of the US District Court in Northern California.
The ruling is a setback in the industry’s ongoing tussle with the SEC to define which cryptocurrencies, if any, qualify as “securities” under US law and, therefore, fall under the SEC’s jurisdiction.
“Once again, a court confirmed that the framework used to identify securities for nearly 80 years still applies, regardless of the labels used,” an SEC spokesperson said in a statement. “Investors in crypto assets offered or sold as securities should get the same protections as investors in other securities, even when they are traded using intermediaries.”
Crypto trading platforms should register with the SEC and “ensure they have safeguards against fraud and manipulation, the commingling of customer assets, and conflicts of interests. Until they do so, investors will continue to get hurt,” the spokesperson said.
The Aug. 23 ruling asserts an expansive definition of what constitutes a “security” by looking not only at any formal investment contracts but also the broader context around which the instruments — in this case, virtual assets — were marketed and sold.
“Contractual formalities are not required for something to qualify as an investment contract, and therefore a security.
