Judge Dismisses Kraken’s Appeal in SEC Lawsuit
A federal judge in California has rejected Kraken’s effort to appeal a previous decision that allows the ongoing lawsuit from the United States Securities and Exchange Commission (SEC) against the cryptocurrency exchange to proceed. On November 18, Judge William Orrick ruled that granting an interlocutory appeal would merely prolong the resolution of the case rather than expedite it.
SEC’s Claims Found Plausible
In his ruling, Judge Orrick noted that the SEC had “adequately alleged” that the cryptocurrencies traded and sold on Kraken qualify as investment contracts based on the established criteria known as the Howey test. He emphasized the importance of discovery in determining whether Kraken’s activities meet all necessary elements outlined by this legal test.
Orrick stated, “Only discovery will establish whether the sales, trades, and exchanges on Kraken truly met all the Howey elements.” The Howey test serves as a judicial standard for assessing whether certain financial transactions can be classified as investment contracts, thus subjecting them to securities regulations.
Kraken’s Legal Dismissal and Interpretation of Investment Contracts
This ruling followed Judge Orrick’s earlier decision in August, where he denied Kraken’s motion to dismiss the SEC case. The exchange contended that the existence of contract formalities or post-sale obligations should be reviewed by a higher court to assess if investment contracts can exist without them. However, Orrick firmly dismissed Kraken’s arguments, citing that there is no legal precedent since the original Howey case supporting the need for such contractual formalities.
Orrick also highlighted that multiple courts have already rejected Kraken’s interpretation of securities laws, reinforcing the assertions made by the SEC. The lawsuit, filed by the SEC in November 2023, alleges that Kraken failed to register properly as an exchange, broker, dealer, and clearing agency.
Adding further complexity to the case, the SEC urged the court to dismiss several of Kraken’s defenses, arguing that existing laws sufficiently clarify what constitutes investment contracts. The agency emphasized that eliminating these defenses would streamline legal proceedings and prevent unnecessary re-litigation of already settled issues.
Criticism of SEC’s Legal Approach
In response to the SEC’s motions, Kraken’s attorney, Michael O’Connor, criticized the agency’s actions as an “Election Day gambit,” drawing parallels to a similar motion in the Ripple case that was dismissed. This criticism reflects the broader tension between cryptocurrency exchanges and regulatory bodies as the industry grapples with evolving legal standards.
Kraken’s New Initiatives in Australia
Amid the ongoing legal struggles in the U.S., Kraken has also launched a new suite of crypto derivatives for its Australian clientele, particularly targeting wholesale investors. This initiative aims to align with local regulatory requirements following a recent legal setback the exchange faced in the country.
The launch underscores Kraken’s dedication to the Australian market, aiming to provide secure, compliant financial services to institutional investors even as the regulatory framework becomes increasingly complex. The new derivatives product allows institutional clients to participate in cryptocurrency price movements via futures contracts without needing to hold the actual assets.
Regulatory Challenges in Australia
Recently, Kraken expressed concerns about the lack of regulatory clarity in Australia, especially in light of a Federal Court ruling that negatively impacted its fiat margin trading service. The exchange articulated that Australian crypto businesses and investors operate within a “confusing and uncertain regulatory environment.”
Kraken’s emphasis on this issue highlights the overarching theme of regulatory ambiguity in Australia’s approach to cryptocurrency. Despite these challenges, the crypto ownership rate in Australia remains relatively high, with reports indicating it stands at 17%, surpassing the global average of 15%. This suggests a resilient interest in the cryptocurrency market among Australian investors amid regulatory uncertainties.