US judge refuses to dismiss SEC's lawsuit against Kraken

During the trial on June 20, the California court judge (USA) proposed to reject the SEC's application to dismiss the lawsuit against Kraken in November 2023.

At the court hearing on June 20, Judge William Orrick of the Northern District Court of California (USA) rejected the application to dismiss the lawsuit of the US Securities Commission (SEC) targeting the cryptocurrency exchange Kraken. Previously, the SEC alleged that the digital assets that Kraken provided were securities under the Howey Test - the basis for the SEC to classify a project token as a security or not.


California judge casts doubt on dismissing SEC's case against crypto exchange Kraken https://t.co/TPwnMchFSe— The Block (@TheBlock__) June 20, 2024
Attorneys representing Kraken and the SEC presented arguments and counterarguments to the judge to determine the ultimate nature of the digital assets on the Kraken exchange. Specifically, the SEC argued that Kraken operates as an “ecosystem” that offers tokens sold as investment contracts and as a platform for users to trade cryptocurrencies. According to the SEC, buyers expect tokens in this ecosystem to profit from Kraken's development and management, leading to the conclusion that these tokens should be considered securities.

Kraken's attorney, Matthew Solomon, argued that there is a big difference between the SEC's lawsuit against Kraken and other lawsuits like Terraform Labs and Telegram. He talk that:

“The SEC cannot rely solely on the token being a security under the Howey Test, they must also demonstrate how the tokens were traded on Kraken.”

Mr. Solomon also emphasized that the SEC's concept of an "ecosystem" just for crypto is unfair, and that the rules should be applied equally to all asset classes, not just cryptocurrencies. .
Judge Orrick heard arguments from both sides but did not issue a final ruling. However, Mr. Orrick said the SEC has made more convincing and well-founded arguments than Kraken. It is highly likely that this judge will deny Kraken's motion to dismiss and share that this lawsuit can last at least another year to collect enough convincing evidence. Judge Orrick stated:

“I think we should consider crypto assets offered and traded as investment contracts.”
The community reacted negatively after the hearing. Account


This is the worst part of the SEC argument and it's hard to believe that this could actually be ruled in the SEC's favor.

They are trying to claim that the actual "network" itself IS THE SECURITY, since they know they can't get them on the token itself. SEC vs. #Kraken https://t.co/1y9iKmi7QN— Chad Steingraber (@ChadSteingraber) June 20, 2024

In November 2023, the SEC sued Kraken for operating illegally, mixing customer funds and listing the tokens on the Kraken exchange that the agency considered securities. In February 2024, Kraken filed a motion to dismiss the lawsuit brought against it by the SEC, arguing that the SEC's allegations had many shortcomings, the agency argued that the exchange operated without a license for "contracts". investment” but none of the tokens mentioned by the SEC in the lawsuit are considered this asset.

If the lawsuit continues, Kraken will face a lengthy legal battle that could affect the operations of this exchange as well as the entire cryptocurrency market. Determining whether digital assets are securities will have far-reaching implications, affecting future crypto regulation and management.

Recent years seem to have been a difficult period for the Kraken exchange. Previously, in February 2023, Kraken was charged by the SEC for not registering to provide and sell cryptocurrency staking products as securities contracts. Kraken then stopped the staking feature and paid a fine of $30 million with interest. Most recently, CertiK discovered a vulnerability on the Kraken exchange and "conveniently" withdrew 3 million USD. Returning to the present, Kraken is also facing disadvantages in the lawsuit from November 2023.

However, the cryptocurrency industry recently won an important legal victory against the SEC when infrastructure company Consensys announced that the US Securities and Exchange Commission had ended its investigation into Ethereum, no longer accusing ETH of being stock.