Judge Indicates Inclination To Deny Motion Dismissal In SEC VS. Kraken Lawsuit

The legal representatives for both parties in the SEC vs. Kraken lawsuits laid out their arguments on whether digital assets on the Kraken crypto exchange fall within the class of securities or not.

In their motion, Kraken counsel reproved the legal theory that the exchange operates as an ecosystem for crypto asset securities, thereby pushing for the dismissal of the case. However, the federal court judge said he was inclined to deny Kraken's motion for dismissal.

Judge Indicates a Denial of Kraken's Motion For Dismissal

The legal representatives for the two parties met to dismiss Kraken's motion for dismissal. While Matthew Solomon represented the Kraken exchange, Peter Moores stood as the SEC's counsel.

The presiding judge in the lawsuit indicated the possibility of denying Kraken's motion for dismissal. Judge Orrick made the statement during a hearing on June 20 in the US District Court for the Northern District of California.

The crypto exchange filed a dismissal motion in February 2024 regarding the SEC's lawsuit against the company.

In his argument, attorney Solomon pointed out some discrepancies between Kraken's lawsuits and those the SEC initiated with other companies such as Terraform and Telegram.

Further, the lawyer cited the SEC vs. Ripple case and Judge Analisa Torres' ruling, noting that the judgment labeled XRP security only when sold to institutional investors. Further, Solomon added that Coinbase's case is the best comparison to Kraken's.

However, the SEC counsel Moores countered the argument, stating that Kraken operated mainly as an ecosystem that allowed the sale of investment contracts.

Additionally, the attorney maintained that under the Howey test, Kraken's activities aligned with the test's classification of securities.

However, the exchange legal team disagreed with such theories. They argued that the agency should not rely only on the Howey test. Instead, it should show that Kraken brokered, traded, or cleared securities.

Following the lawyers' presentations, Judge Orrick didn't issue any ruling on the motion. However, he mentioned that he may likely deny Kraken's motion for dismissal.

According to the judge, it was plausible" that the crypto exchange offered and sold digital assets as investment contracts. Also, Orrick pointed out that a year would be enough for discovery of where the case would proceed.

SEC's Legal Journey Against The Kraken Crypto Exchange

The SEC initiated its first enforcement action against the Kraken crypto exchange in early 2023. The regulator claimed the exchange's staking program on its platform was an offering of unregistered securities.

Consequently, Kraken agreed to settle with the regulator by paying a $30 million penal fine and halted its staking program. The SEC cracked down on Kraken again in November 2023. The agency sued the exchange, alleging that it operates as an unregistered exchange, dealer, broker, and clearing platform.

Both parties have been battling each other in court until the recent dismissal motion filed by Kraken Exchange, which has yet to be accepted or rejected by the presiding judge.

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