A California judge has determined that the Securities and Exchange Commission's (SEC) lawsuit against the Kraken cryptocurrency exchange will move forward to trial.
A California judge has determined that the Securities and Exchange Commission's (SEC) lawsuit against the Kraken cryptocurrency exchange will move forward to trial. U.S. District Court Judge William H. Orrick issued the ruling on August 23rd, concluding that the SEC has presented a credible case that some cryptocurrency transactions facilitated by Kraken could be classified as investment contracts, falling under securities regulations.
The SEC filed the lawsuit against Kraken in 2023, alleging that the exchange failed to register as a broker, exchange, or clearinghouse, as required by federal law. This case highlights the SEC's growing scrutiny of the cryptocurrency industry, extending beyond exchanges to specific digital assets. The SEC's claims suggest that cryptocurrencies like Cardano (ADA) and Solana (SOL) should be classified as securities.
Kraken had attempted to dismiss the lawsuit in February, arguing that the SEC had not adequately demonstrated a violation of the law and that cryptocurrencies do not meet the legal definition of a security as defined by the Howey Test. However, Judge Orrick ultimately ruled that the case requires further examination, emphasizing the distinction between digital assets themselves and the contracts surrounding their sale.
Judge Orrick stated that while cryptocurrencies are not inherently securities, the transactions involving their purchase and sale could potentially be categorized as investment contracts. He used the analogy of agricultural contracts, noting that "Orange groves are no more securities than cryptocurrency tokens are. But the contracts surrounding the sale of both may form an investment contract."
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