Race Day Live A California federal judge has partly agreed with the SEC (Securities and Exchange Commission) in its case against Kraken, a leading U.S. cryptocurrency exchange.
The SEC claims Kraken offered unregistered securities on its platform.
Judge William Orrick dismissed Kraken’s claim that the SEC overstepped its authority. Kraken used the “major questions doctrine” to argue that the SEC was acting beyond its powers.
This doctrine says agencies can only enforce rules if Congress has granted them the authority. However, Judge Orrick ruled that the SEC was working within its legal limits.
Even though this decision goes against Kraken, another part of their defense remains. Kraken argued that the SEC did not give enough warning that its activities broke securities laws.
Judge Orrick agreed that Kraken could argue this point. He said Kraken had a plausible claim that the SEC failed to give enough notice under the Howey test.
This test helps determine if something is an investment contract and, therefore, a security.
This case is one of many actions the SEC has taken to regulate cryptocurrency exchanges.
Since November 2023, the SEC has targeted multiple platforms for alleged violations. However, debates continue about whether the SEC’s guidance is clear enough and whether the agency is overstepping its authority.
Kraken also asked the judge to allow an immediate appeal, arguing it could speed up the case. Judge Orrick denied this, saying more evidence is needed before such an appeal can proceed.
The SEC originally sued Kraken in November 2022. It accused the exchange of operating without proper registration as a securities exchange, broker, dealer, or clearinghouse.
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The SEC is asking for financial penalties, repayment of profits, and a permanent ban on some of Kraken’s activities.
Kraken denies the allegations and had previously tried to get the case dismissed. However, the judge rejected that request in August 2023.
Kraken’s legal team compared this case to other SEC lawsuits, such as those involving Ripple Labs and Coinbase. They argued there are key differences, especially in how securities laws apply to crypto transactions.
The SEC has urged the court to reject Kraken’s defenses, saying they could lead to unnecessary legal delays.
This ongoing battle highlights the broader struggle between crypto companies and regulators as both sides fight over the future of the cryptocurrency industry in the U.S.
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