Kraken Vs Sec Lawsuits: Judge Hints Denial of Kraken’s Motion to Dismiss the Case

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The ongoing legal battle between Kraken and the U.S. Securities and Exchange Commission (SEC) took a dramatic turn during a recent court hearing on Kraken’s motion to dismiss the lawsuit. The judge hinted that Kraken’s request to dismiss the case might not happen. Here’s what happened in the court ruling. 

Judge Hints at Denial of Motion

During a June 20 court hearing, Judge William Orrick who overseeing the SEC vs Kraken case expressed his inclination to deny Kraken’s motion to dismiss the SEC’s case. Before any arguments were made, Judge Orrick mentioned he was likely to follow the rulings of Judges Rakoff and Failla, who have previously denied similar motions to dismiss in related cases.

This will lead to a lengthy legal battle over the classification of digital assets as securities, affecting how the government regulates cryptocurrencies overall.

SEC’s Argument

The SEC, represented by counsel Peter Moores, argued that Kraken’s platform facilitated the sale of tokens as investment contracts, which would classify them as securities under the Howey test. The SEC’s stance is that Kraken’s business model involves selling digital assets as securities, necessitating regulatory oversight.

Kraken’s Defense

Kraken’s legal team, led by Matthew Solomon, countered the SEC’s claims by highlighting differences between Kraken’s case and other high-profile cases, such as those involving Terraform Labs and Telegram. 

Solomon referenced the SEC’s case against Ripple Labs, where XRP was deemed a security when sold to institutional investors, arguing that the case most comparable to Kraken’s was Coinbase’s.

Potential for Lengthy Lawsuits

Until now, Judge Orrick did not issue a formal ruling but suggested that the SEC’s argument was “plausible,” indicating that Kraken’s motion to dismiss would likely be denied.

If the judge denies Kraken’s motion to dismiss, the case will move into a lengthy discovery phase, involving extensive fact-finding, documentation, and depositions. 

This process could stretch over several years and incur significant legal expenses for Kraken, similar to what Ripple is currently experiencing in its ongoing legal tussle with the SEC.

Background of Kraken Vs SEC Lawsuits

In November 2023, the SEC sued Kraken’s parent companies, accusing them of running an online trading platform. Meanwhile, Kraken tried to stop the lawsuit in February through a settlement in which Kraken agreed to pay $30 million and halt its staking services to U.S. clients. 

However, eight state attorneys general supported Kraken, saying the SEC went too far. Kraken also said the SEC didn’t prove certain points required by the Howey Test.

The SEC disagreed, saying Kraken was avoiding rules that protect investors. They also said an agreement wasn’t necessary for an investment contract.