Judge in SEC v. Kraken case suggests he will deny motion to dismiss

Turner Wright1 hour agoJudge in SEC v. Kraken case suggests he will deny motion to dismissIn their motion to dismiss, Kraken’s lawyers disputed the legal theory that the exchange was an “ecosystem” for crypto asset securities.428 Total viewsListen to article 0:00NewsOwn this piece of crypto historyCollect this article as NFTJoin us on social networksLawyers representing Kraken and the United States Securities and Exchange Commission (SEC) presented competing arguments to a federal judge over whether digital assets on the exchange may be considered securities.

In a June 20 hearing in the U.S. District Court for the Northern District of California, Payward — the firm doing business as Kraken — lawyer Matthew Solomon and SEC counsel Peter Moores met before Judge William Orrick to address a motion to dismiss filed by the exchange in February. The judge suggested he was “inclined to deny” the motion to dismiss, saying it was “plausible” digital assets were offered and sold as investment contracts on the crypto exchange.

In arguments before the judge, Solomon argued that there were significant differences in litigated cases between the SEC and Terraform Labs and Telegram. He also cited Judge Analisa Torres’ decision in the SEC’s case against Ripple Labs — in which the judge ruled the XRP token was a security when sold to institutional investors — but suggested the closest comparable case to Kraken’s was Coinbase’s.

The SEC’s argument focused on treating Kraken as an “ecosystem” in which tokens are sold as investment contracts — or “concepts,” as the commission alleged — which would seemingly make them securities under the Howey test. The exchange’s legal team pushed back against these legal theories.

“I think conjuring up the notion of an ecosystem just for crypto — that’s not the way rules oughta be applied,” said Solomon. “Crypto deserves no better than anybody else, but they oughta have the rules applied equally to them as they’ve applied to everyone else.”

The Kraken lawyer added:“The SEC doesn’t just have to show that there is a security under Howie, they’ve gotta show that that security was brokered, traded, or cleared on Kraken. That is impossible the way they’ve constructed their argument.”

Judge Orrick did not issue a ruling on the motion to dismiss at the hearing but suggested that after arguments from Kraken and the SEC, he was still leaning toward denying it. In addition, he said, “a year should be sufficient” for discovery if the case moves forward.

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The SEC filed its enforcement action against Kraken in November 2023. Before the commission brought the case, Kraken settled with the SEC in February 2023, agreeing to pay $30 million and stop offering staking services or programs to U.S. clients.

Though Ether (ETH) was not explicitly mentioned in the SEC v. Kraken case, the token has been at the forefront of some crypto firms fighting the regulator in court. Reports from March suggested that the SEC was considering labeling ETH as a security and potentially bringing enforcement actions against firms handling the token.

In April, blockchain firm Consensys filed a lawsuit against the commission after receiving a Wells notice suggesting a potential enforcement action based on Ether. The SEC closed its investigation on June 19, suggesting that the commission considered Ether a commodity.

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