SEC Lawsuit Against Kraken Can Move Forward, Judge Rules

Cryptocurrency exchange Kraken must face a lawsuit brought against it by U.S. regulators, a federal judge ruled Friday. 

The lawsuit, filed last November in the U.S. District Court for the Northern District of California, alleges Kraken operated as an unregistered securities exchange‌, according to court filings. The ruling puts an end to Kraken’s slew of efforts to get the lawsuit dismissed.

“The SEC has plausibly alleged that at least some of the cryptocurrency transactions that Kraken facilitates on its network constitute investment contracts, and therefore securities, and are accordingly subject to securities laws,” U.S. District Judge William H. Orrick said Friday in an order.

In the legal complaint, the SEC asserted that the tokens ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL are securities‌. Thus, it said, transactions involving the tokens would fall under its jurisdiction.

Despite the ruling allowing discovery in the case to go forward, Kraken chief legal officer Marco Santori interpreted it as a “significant win for Kraken.”

“Fundamentally, the court in Kraken’s case made the same distinction as in the Ripple case: A token isn’t a security, but agreements around a token could be,” he said Friday in a post on X.

Neither the SEC nor Kraken immediately responded to a request for comment from Decrypt.

This latest turn in the Securities and Exchange Commission’s case against Kraken follows a months-long tussle between federal regulators and the cryptocurrency exchange.

Kraken made several attempts to get the SEC’s lawsuit against its business dismissed earlier this year. In February, Kraken’s lawyers argued that the SEC had failed to prove whether transactions on its platform qualify as investment contracts according to the Howey Test.

The Howey Test is used to determine whether an investment falls under federal regulators’ jurisdiction in the U.S. 

The company’s lawyers also argued that the SEC had not pointed out “investment contracts that were (or could be) traded, brokered, or settled on Kraken,” court records show.

Kraken must respond to the complaint within 20 days, according to the ruling.