Kraken vs SEC Heats Up: Dismissal Request in Jeopardy?

The ongoing legal battle between Kraken and the U.S. Securities and Exchange Commission (SEC) took a dramatic turn during a recent court hearing on Kraken’s motion to dismiss the lawsuit. The judge hinted that Kraken’s request to dismiss the case might not succeed.

Here’s a detailed look at the court proceedings.

Judge Hints at Denying Kraken’s Motion

During a June 20 court hearing, Judge William Orrick, overseeing the SEC vs. Kraken case, expressed his inclination to deny Kraken’s motion to dismiss the SEC’s case. Before any arguments were presented, Judge Orrick indicated he was likely to follow the rulings of Judges Rakoff and Failla, who have previously denied similar motions in related cases.

The stakes are high.

A denial of Kraken’s motion would pave the way for a lengthy legal battle over the classification of digital assets as securities, potentially impacting how the government regulates cryptocurrencies.

SEC’s Argument

The SEC, represented by counsel Peter Moores, argued that Kraken’s platform facilitated the sale of tokens as investment contracts, which would classify them as securities under the Howey Test. The SEC contends that Kraken’s business model involves selling digital assets as securities, necessitating regulatory oversight.

Kraken’s Defense

Kraken’s legal team, led by Matthew Solomon, countered the SEC’s claims by highlighting differences between Kraken’s case and other high-profile cases, such as those involving Terraform Labs and Telegram. Solomon referenced the SEC’s case against Ripple Labs, where XRP was deemed a security when sold to institutional investors, arguing that the case most comparable to Kraken’s was Coinbase’s.

Judge Orrick has not issued a formal ruling yet but suggested that the SEC’s argument was “plausible,” indicating that Kraken’s motion to dismiss would likely be denied.

What’s Next?

If the judge denies Kraken’s motion to dismiss, the case will move into a lengthy discovery phase involving extensive fact-finding, documentation, and depositions. This process could stretch over several years and incur significant legal expenses for Kraken, similar to what Ripple is currently experiencing in its ongoing legal battle with the SEC.

Background: Kraken vs SEC

Let’s understand where it all began.

In November 2023, the SEC sued Kraken’s parent companies, accusing them of running an online trading platform. Kraken attempted to halt the lawsuit in February through a settlement, agreeing to pay $30 million and cease its staking services to U.S. clients.

Eight state attorneys general supported Kraken, arguing that the SEC overstepped its boundaries. Kraken also contended that the SEC failed to prove certain points required by the Howey Test.

The SEC disagreed, asserting that Kraken was evading regulations designed to protect investors. They argued that an agreement wasn’t necessary for an investment contract to be in place.

Also Read Why: Analyst Advises To Stay Away From Stacking Stagnant Altcoins Like XRP and ADA

The outcome of this case could impact crypto regulations for years to come. Stay tuned to Coinpedia for updates.