A federal judge in California has denied some of Kraken’s defenses in the ongoing lawsuit brought by the SEC.
According to the Jan. 24 filing, Judge William Orrick dismissed Kraken’s argument that the SEC overstepped its authority under the major questions doctrine. The doctrine prohibits federal agencies from assuming powers that were not explicitly delegated to them by Congress. However, the judge ruled that the SEC acted within its legal mandate.
Since 2018, the SEC and the crypto exchange have been going toe to toe in court, with the agency accusing it of selling unregistered securities on its platform. The case is mainly about whether trades of cryptocurrency on Kraken’s platform are securities under the ‘Howey Test’ that defines investment contracts.
According to Kraken, the activities on its platform are not subject to SEC regulation. Although the court dismissed the major questions defense, it allowed Kraken to continue with its two other defenses: ‘fair notice’ and ‘due process.’
“I have already determined that the major questions doctrine is not implicated in this case, at least under the current facts, and GRANT the motion to dismiss it,” the judge said.
Judge Orrick said that the ‘major questions doctrine’ typically deals with issues that have extensive economic impacts, such as energy or student loans. He added that the crypto market is growing but is not yet at a level that could be influenced by economic events.
The SEC complaint was brought in late 2023, seeking sanctions, disgorgement of profits, and a ban on Kraken’s alleged violations. In response, Kraken raises 18 defenses, three of which the SEC wants to dismiss. In short, this dismissal is a win for the agency.
Other crypto firms like Binance, Coinbase, and Ripple also invoke the major questions doctrine in their fights with the SEC.
Right now, there are different responses from the crypto community. Ripple chief legal officer Stuart Alderoty said that there were still stale arguments being made by some SEC lawyers, and this resulted in what he characterized as another warning from the judge.
One X user called on Kraken to continue the fight, while another analyst thinks the fight is far from over.
Meanwhile, crypto commentator Himanshu Sirohi warned that if Kraken loses, it could have to end some of its services in the U.S. or pay a big fine.
Sirohi further said that more strict rules might come in the future, and this could make it harder for crypto businesses to operate.
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