A California Judge has ruled that the Securities and Exchange Commission’s (SEC) lawsuit against the Kraken crypto exchange will proceed to trial. The federal regulator filed a lawsuit against Kraken in California last year, alleging that the crypto company failed to register with the SEC as a broker, exchange, or clearinghouse.
The decision was made by U.S. District Court Judge William H. Orrick of the Northern District of California on August 23. Judge Orrick stated that 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.”
This legal action against Kraken signifies an expanding regulatory focus by the SEC, extending beyond exchanges to specific cryptocurrencies. The lawsuit also categorizes Cardano (ADA) and Solana (SOL) as securities according to the SEC.
Kraken had previously motioned to dismiss the SEC lawsuit in February, arguing that the SEC had failed to state a claim that the facts in the case, even if true, did not constitute a violation of the law. The exchange also contended that cryptocurrencies do not meet the definition of security as defined by the Howey Test. However, Judge Orrick ruled that the case will proceed to trial.
While Orrick acknowledged that cryptocurrencies themselves are not securities, he emphasized that the purchase and sale of them could still be considered an investment contract. He compared this to the sale of orange groves, stating that while the groves themselves are not securities, the contracts surrounding their sale could form an investment contract falling under the purview of the Exchange Act.
The SEC’s lawsuit against Kraken highlights the ongoing regulatory scrutiny faced by the crypto industry. As the case moves forward to trial, it will be closely watched by market participants and industry observers to see how it may impact the broader crypto market and regulatory landscape.