In a recent development, a US federal judge has denied crypto exchange Kraken’s request to dismiss the lawsuit filed by the Securities and Exchange Commission (SEC) over allegations of operating an unregistered securities exchange. This decision comes after Kraken had filed a motion to dismiss the case that was initially brought by the SEC in November.
The SEC’s complaint accused Kraken of operating as an unregistered securities exchange, broker, dealer, and clearing agency. The regulator also claimed that Kraken had been illegally facilitating the trading of securities and had earned hundreds of millions of dollars in the process since 2018. According to the SEC, Kraken’s failure to register as a security broker had prevented customers from receiving necessary protections such as regulatory inspections, safeguards against conflicts of interest, and compliance with recordkeeping requirements.
Kraken, in its attempt to dismiss the case, argued that the SEC’s allegations were unfounded and based on a flawed interpretation of securities laws. The exchange contended that the SEC was trying to apply outdated regulatory frameworks to the rapidly evolving crypto industry without clear guidelines. However, Judge William H. Orrick ruled in favor of the SEC, stating that the regulator had plausibly alleged that some of the cryptocurrency transactions facilitated by Kraken constituted investment contracts and were therefore subject to securities laws.
The ruling aligns with SEC Chair Gary Gensler’s belief that most digital tokens are unregistered securities and should be subject to SEC oversight. The case, officially titled Securities and Exchange Commission v. Payward Inc., will now proceed in the US District Court for the Northern District of California. As of now, Kraken and the SEC have not provided any comments on the ruling.
This recent setback for Kraken in the US court comes amidst reports that the exchange is planning to raise $100 million in a final funding round before a potential initial public offering (IPO) in 2025. Moreover, Kraken also faced legal challenges in Australia, where the Australian securities watchdog ruled against Bit Trade Pty, the entity operating the Kraken exchange in the country. ASIC claimed that Bit Trade had been offering margin trading products without complying with ASIC rules since October 5, 2021, and intends to seek financial penalties against the company.
The denial of Kraken’s motion to dismiss the SEC lawsuit is a significant blow to the exchange’s legal defense. The ruling underscores the SEC’s efforts to regulate the crypto industry and signals a potential shift towards stricter enforcement of securities laws in the digital asset space. Kraken’s legal troubles, both in the US and Australia, highlight the challenges faced by cryptocurrency exchanges in navigating complex regulatory landscapes. It remains to be seen how Kraken will respond to these legal setbacks and whether they will impact the exchange’s future plans for expansion and public listing.
Leave a Reply