• A federal judge ruled that the SEC had brought plausible allegations against crypto exchange Kraken, allowing the SEC’s lawsuit to proceed to trial.
• The SEC sued Kraken last year, alleging the exchange failed to register as a broker, exchange or clearinghouse.
• The judge agreed with Kraken that the cryptocurrencies themselves are not securities, but ruled that the transactions involving them could potentially be considered investment contracts subject to securities laws.
The SEC sued Kraken in November 2022 for allegedly operating an unregistered securities exchange. Kraken tried to get the case dismissed but a California judge ruled last week that the lawsuit can proceed to trial. This means the SEC will have a chance to prove its claims that Kraken broke the law.
Background on the SEC’s Lawsuit Against Crypto Exchanges
The SEC has filed similar lawsuits against other major crypto exchanges like Coinbase and Binance. The regulators argue these platforms should have registered with the SEC as brokers and exchanges. The exchanges say cryptocurrencies are not securities so they don’t need to register. Judges have allowed most of these cases to move forward so the SEC will have opportunities to prove crypto trading constitutes unregistered securities activity.
Judge Rules SEC Made Plausible Allegations Against Kraken
In his August ruling, the judge said the SEC plausibly alleged that some crypto transactions on Kraken are investment contracts and thus securities. Investment contracts refer to schemes where people invest money in a project in hopes of profiting from others’ work. The judge said it’s plausible Kraken facilitated securities transactions even if the cryptocurrencies themselves are not securities.
This Means the Case Will Proceed to Trial
By rejecting Kraken’s motion to dismiss, the judge paved the way for a trial. The parties will now file a schedule and propose trial dates. At trial, the SEC will try to prove Kraken violated securities laws while Kraken will argue it didn’t have to register with the agency. The outcome of the trial could have significant implications for crypto regulation in the U.S.
