Kraken SEC Lawsuit Allowed to Continue by Judge

Key Points:

• A federal judge ruled that Kraken must face an SEC lawsuit alleging the crypto exchange operated as an unregistered securities exchange.
• In the Kraken SEC lawsuit, the agency claims some transactions on Kraken’s platform qualify as investment contracts.

A federal judge has ordered Kraken to face a lawsuit from the US Securities and Exchange Commission over claims it ran an unregistered securities exchange.

Read more: Kraken Australia Loses Case to a Regulator in the Court Ruling

Kraken SEC Lawsuit Continues With Alleged Unregistered Securities Exchange

On Friday, U.S. District Judge William H. Orrick of the San Francisco federal court ruled that the SEC had plausibly alleged that, at a minimum, some of the cryptocurrency transactions that Kraken facilitated on its platform had been investment contracts subject to securities laws.

The Kraken SEC lawsuit was filed in November 2023 by the SEC, which alleged Kraken ran an unregistered securities exchange, broker-dealer, and clearing agency. It also alleged the platform commingled customer assets with its own and mishandled customer data.

According to Presiding Judge Orrick in a ruling, Kraken created more than $43 million in revenue from its trading desk between the years 2020 and 2021. It featured charging fees and very minimal constraints on trading assets.

The exchange’s trading desk raked in over $43 million in the two years from 2020 through 2021, mostly from the fees it charged. The motion to dismiss the Kraken SEC lawsuit was thrown out as the judge ruled that claims by the SEC should be reviewed further.

Kraken Fights SEC Allegations and Legal Uncertainty Grows

In response to the ruling, Kraken’s chief legal officer, Marco Santori, said that none of the tokens being traded on the platform had been named as securities in the court’s ruling. Santori heralded the ruling as a victory for clarity in the cryptocurrency space by saying that Kraken does not list any securities.

According to the SEC, led by Chair Gary Gensler, most digital tokens are unregistered securities and have to be treated under the law as any other security. What is problematic is that considering digital tokens were labelled securities, different opinions about the matter have always been raised throughout the different court cases, including recent rows involving Ripple Labs.