In a major legal setback for one of the largest cryptocurrency exchanges, a California judge has ruled to revoke its license. to rule Cryptocurrency platform Kraken is set to face a lawsuit filed by the US Securities and Exchange Commission (SEC).
Kraken faces uphill legal battle
The SEC alleges that Kraken operated an unregistered securities exchange, a charge the company has vehemently denied. But in a ruling Friday, U.S. District Judge William H. Orrick in San Francisco found the SEC’s argument that some cryptocurrencies are illegal to be true. Symbols Securities sold on the Kraken platform constitute “investment contracts” and are therefore considered “reasonable” securities subject to agency supervision.
The ruling denied Kraken’s motion to dismiss the SEC’s lawsuit filed in November 2022. Judge Orrick stated in his opinion:
The SEC has reasonably alleged that certain cryptocurrency transactions facilitated by Kraken on its network constitute investment contracts, and therefore securities, and are therefore subject to Securities Laws.
Kraken has argued, similar to the defense offered by blockchain payments company Ripple in its ongoing battle with the SEC, that the agency lacks jurisdiction over digital assets.
The company claimed that as an exchange or “secondary market” platform, it is subject to different regulatory rules than a direct issuance of tokens, as was the case with the SEC’s actions against Terraform Labs.
But Judge Orrick rejected Kraken’s attempt to set aside the order, ruling that the SEC’s claims against the exchange were “sustainable.” That’s a major victory for the regulator, which under its chairman Gary Gensler has taken an increasingly aggressive stance against the exchange. Crypto industryarguing that most digital tokens are unregistered securities.
Escalating Crackdown on Cryptocurrencies
Kraken’s decision comes on the heels of a mixed bag of rulings by the SEC in other high-profile crypto cases. While a federal judge in Manhattan last year found that Ripple’s XRP Token Sales Although cryptocurrencies have not been subject to the SEC’s jurisdiction, other courts have sided with the agency, including in its cases against Terraform Labs and Coinbase.
Ripple’s ruling, which limited the SEC’s authority over XRP sales to institutional investors, was a major victory for the crypto industry. However, the exchange was recently ordered to pay a $125 million civil penalty — a fraction of the roughly $2 billion the SEC was seeking.
For Kraken, the California court’s refusal to dismiss the SEC’s lawsuit means the exchange now faces the prospect of a protracted legal battle over the regulatory status of crypto assets traded on its platform.
At the time of writing, Bitcoin was trading at $63,647, up over 4% in the 24-hour time frame.
Featured image by DALL-E, chart by TradingView.com