Kraken and SEC Lock Horns in Court Over Crypto's Security Status
Summary:
In a recent federal court hearing, legal representatives of cryptocurrency exchange Kraken and the SEC presented their conflicting interpretations of whether digital assets could be considered securities. The discussion centered around Kraken's filed motion to dismiss a case from February. Judge William Orrick hinted at rejecting the motion, stating the plausibility of digital assets being sold as investment contracts on the exchange. The exchange's legal team resisted these theories, with Kraken's lawyer arguing that the SEC must prove that securities were actually brokered, traded or cleared on Kraken. Kraken had previously settled with the SEC in February 2023 for $30 million and ceased its staking services to U.S. clients.
In a recent federal court hearing, opposing viewpoints concerning the status of digital assets as securities were debated by legal representatives of Kraken and the US Securities and Exchange Commission (SEC). The hearing, held on June 20 in the U.S. District Court for the Northern District of California, saw Matthew Solomon, counsel for Payward, the company that operates under the name Kraken, cross swords with Peter Moores, an SEC representative, over Kraken's motion to dismiss a lawsuit, which was filed by the exchange in February.
Judge William Orrick expressed a preliminary tendency towards rejecting the motion, theorizing that it is conceivable that digital assets were promoted and sold as investment contracts on the crypto exchange. Solomon argued in front of Judge Orrick that the SEC cases involving Terraform Labs and Telegram had substantial distinctions from the proceedings surrounding Kraken. He referenced the case against Ripple Labs, where Judge Analisa Torres ruled, the sales of the XRP token to institutional investors constituted a security sale.
However, Solomon implied that Kraken’s circumstances mirrored those of Coinbase more accurately. The SEC built an argument around treating Kraken as an environment where tokens are traded as investment contracts – terms which are comparable to securities under the Howey test. The legal team for the exchange refuted these judicial theories. Solomon expressed thoughts, of courts inaccurately applying rules of crypto into an "ecosystem", which would raise inequality in the sector.
Solomon continued, placing the burden on the SEC to prove that securities as defined by Howie were indeed brokered, traded, or cleared on Kraken, which he deemed an impossible task under their current argument. Judge Orrick did not provide a final decision on the dismissal request during the hearing. He did, however, maintain his initial stance towards denying it, stating that a yearlong investigation would be enough to move the case forward if necessary.
The SEC's legal challenge against Kraken was initiated in November 2023. Prior to this announcement, Kraken came to a settlement deal with the SEC in February 2023. The exchange agreed to a $30 million settlement and ceased offering services or programs related to staking to its US clients.
Despite not being directly mentioned in the SEC's case against Kraken, the Ether (ETH) token has frequently found itself in the crosshairs of crypto firms that are currently engaged in legal battles with the regulatory agency. It was reported in March that the SEC was contemplating categorizing ETH as a security, potentially leading to enforcement actions against firms that dealt with the token. In the wake of a Wells notice foreshadowing potential enforcement action based on Ether, blockchain company Consensys launched a lawsuit against the commission in April. After inspecting ETH until June 19, the SEC concluded that Ether is to be regarded as a commodity.
Published At
6/21/2024 1:10:00 AM
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