SEC vs. Kraken Lawsuit: A Major Cryptocurrency Exchange Will Proceed to Trial

Kraken, one of the major cryptocurrency exchanges, was sued by the SEC last November in the Northern District of California.

The U.S. District Court has ruled that the SEC's lawsuit against Kraken will proceed to trial, after rejecting the crypto exchange's motion to dismiss the case.

The SEC had sued Kraken in November 2023, alleging that the crypto exchange violated federal securities law by failing to register with the agency as a broker or exchange. The regulator had argued that some of the crypto transactions on Kraken's platform were investment contracts and hence securities, which should be registered under the SEC.

However, Judge William H. Orrick of the Northern District of California ruled that none of the cryptos listed on Kraken are securities, but the contracts surrounding their sale could be considered as securities.

This distinction is crucial as it will determine whether Kraken can be held liable for violating securities law. The case now hinges on whether the contracts offered by Kraken meet the definition of an investment contract, as laid out by the Howey Test.

The SEC has been cracking down on crypto exchanges for failing to register with the agency, with Binance and Coinbase also facing lawsuits. Both exchanges had attempted to dismiss their respective cases, but their efforts were unsuccessful.

The legal battle between the SEC and crypto exchanges is set to continue, with the court ordering both parties to submit a joint statement by October 8th, which will include a proposed case schedule and trial dates.

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