Judge Dismisses Kraken’s Appeal, SEC Lawsuit to Proceed

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Ruholamin Haqshanas

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Ruholamin Haqshanas

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Ruholamin Haqshanas is a contributing crypto writer for CryptoNews. He is a crypto and finance journalist with over four years of experience. Ruholamin has been featured in several high-profile crypto...

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November 19, 2024

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A California federal judge has rejected Kraken’s attempt to appeal a decision allowing the United States Securities and Exchange Commission (SEC) lawsuit against the crypto exchange to move forward.

Judge William Orrick ruled on November 18 that granting an interlocutory appeal would only delay the resolution of the case.

The judge also claimed that the SEC had “adequately alleged” that cryptocurrencies traded and sold on Kraken qualify as investment contracts under the Howey test.

SEC’s Claims Against Kraken Were Plausible

Orrick noted that the SEC’s claims against Kraken were plausible but required further discovery to determine whether the platform’s activities indeed meet all elements of the Howey test.

“Only discovery will establish whether the sales, trades, and exchanges on Kraken truly met all the Howey elements,” he wrote.

The Howey test is used to determine whether certain transactions constitute investment contracts and are thus subject to securities regulations.

Kraken’s motion for an appeal followed Orrick’s August rejection of its bid to dismiss the SEC case.

The exchange argued that questions about whether an investment contract can exist without a formal agreement or post-sale obligations warranted review by a higher court.

However, Orrick dismissed Kraken’s arguments, stating no legal precedent since Howey supports the requirement of contractual formalities for investment contracts.

He also pointed out that multiple courts have already disagreed with Kraken’s interpretation of securities laws.

The SEC, which filed the lawsuit in November 2023, alleges Kraken failed to register as an exchange, broker, dealer, and clearing agency.

Earlier this month, the agency urged the court to dismiss several of Kraken’s defenses, asserting that existing laws provide sufficient clarity on investment contracts.

The agency argued that dismissing Kraken’s defenses would streamline the legal process and prevent unnecessary re-litigation of settled issues.

Kraken’s attorney, Michael O’Connor, criticized the SEC’s motion as an “Election Day gambit,” citing similarities to the Ripple case, where a comparable SEC motion was rejected.

Kraken Launches Crypto Derivatives Suite for Australian Clients

Kraken has introduced a new suite of crypto derivatives tailored for Australian wholesale clients, designed to align with regulatory requirements after facing a recent legal setback in the country.

The launch reflects Kraken’s commitment to the Australian market and its efforts to provide secure and compliant services for institutional investors amid a changing regulatory landscape.

Kraken’s new derivatives offering enables institutional clients to gain exposure to cryptocurrency price movements through futures derivatives without the need to hold the underlying assets.

Just recently, Kraken raised concerns about the lack of regulatory clarity in Australia following a Federal Court ruling against its fiat margin trading product.

The exchange said that Australian crypto businesses and investors continue to operate in a “confusing and uncertain regulatory environment.”

The exchange emphasized that the court’s decision underscores the broader issue of regulatory ambiguity in the country’s approach to cryptocurrency.

The crypto market in Australia has seen significant growth over the past few years in terms of ownership and adoption.

As reported, the crypto ownership rate in Australia is 17%, which is higher than the global average of 15%.