Kraken Faces Setback in SEC Lawsuit: Ruling Favours Regulator

• Judge Orrick’s ruling denies Kraken’s attempt to dismiss the SEC’s lawsuit over unregistered securities.
• The SEC alleges Kraken traded unregistered securities, including ADA and SOL, on its platform.
• Kraken views partial victory in rejecting “crypto asset security” term but faces ongoing legal challenges.

In the ongoing SEC v. Kraken case, former SEC official John Reed Stark highlighted a significant setback for Kraken’s cryptocurrency exchange. Judge William Orrick’s recent ruling, which denied Kraken’s motion to dismiss the lawsuit, has been characterized by Stark as a major victory for the U.S. Securities and Exchange Commission (SEC). 

Judge Orrick turned down Kraken’s dismissal request in a court order issued earlier this week. Last November, the SEC filed a complaint accusing Kraken of illegally trading unregistered securities on its platform. The so-called unregistered securities include Cardano (ADA) and Solana (SOL).

Kraken’s chief legal officer, Marco Santori, described the court decision as a win for Kraken when he said the court did not completely agree with the Securities and Exchange Commission. According to Santori, Kraken sees Judge Orrick’s refusal to use the term “crypto asset security” as an encouraging outcome.

However, the judge’s ruling confirms that this semantic problem does not detract from the SEC’s argument that Kraken engaged in unlawful stock sales.

Judge Orrick then emphasized that the Howey test has clearly shown why secondary sales of crypto assets can meet this criterion, which determines whether something qualifies as a security under law.

Stark observed that the Ripple case, which some had been hoping would resolve this matter, had limited precedent value in U.S. courts. In his opinion, Stark commends Judge Orrick for issuing a clear-cut and daunting verdict in favor of the SEC.

Despite the setback, Kraken remains optimistic about its legal battle. Marco Santori believes that the ruling confirms the company’s stance that the SEC’s enforcement approach is not a viable method for regulating the crypto industry. Kraken’s legal team is prepared to continue fighting the charges, with the hope of a favorable resolution in the ongoing dispute.