SEC Secures Partial Legal Victory Against Kraken as Key Defense is Dismissed

SEC Achieves Partial Legal Victory

The U.S. Securities and Exchange Commission (SEC) secured a partial win in its legal actions against Kraken, a prominent cryptocurrency exchange, after a federal court judge in California dismissed a significant defense by Kraken.

On January 24, 2025, Judge William Orrick ruled against Kraken’s invocation of the “major questions doctrine”, which posits that federal agencies lack the authority to exercise powers not explicitly granted by Congress.

The SEC’s lawsuit, filed in November 2023, accuses Kraken of operating as an unregistered securities exchange since 2018. Despite Kraken’s efforts to dismiss the case, those attempts were rejected by the court in August 2024.

Key Legal Findings

Judge Orrick affirmed that the SEC’s jurisdiction over digital assets aligns with Congressional intent, clarifying that while cryptocurrency continues to grow, it does not yet demonstrate the economic significance of industries like energy or higher education loans.

However, the judge allowed Kraken’s “fair notice” defense, permitting the exchange to argue that the SEC did not provide adequate guidance concerning potential violations of securities laws. Kraken claimed uncertainty regarding the applicability of the Howey Test, essential for determining whether an asset qualifies as an investment contract, especially in secondary market transactions.

Ongoing Developments

Kraken maintains its denial of the SEC’s allegations and continues to prepare its defenses for the ongoing lawsuit. This case forms part of the broader regulatory actions taken by the SEC to enforce compliance within the cryptocurrency sector.

Explore Further

Kraken is actively seeking to expand its markets, having launched a wrapped bitcoin token called kBTC on Ethereum and is exploring a potential initial public offering (IPO).

Disclaimer: Crypto investments carry significant risk; always conduct thorough research before investing.