The US District Court for the Northern District of California Judge William Orrick denied Kraken’s interlocutory appeal, asserting that it would only “delay resolution.” The decision allows the SEC lawsuit against the cryptocurrency exchange to proceed.
The exchange had sought permission to take the case on appeal after the August ruling on the motion to dismiss the case. The exchange further submitted that there were significant legal issues on securities laws that the appellate court could answer. Kraken thought that the resolution of such questions could lead to the termination of the case.
SEC’s Evidence Upheld
In his current order, Orrick said that the SEC had “sufficiently pleaded” that Kraken’s trading and sales of crypto assets were investment contracts under the Howey test, a standard used to determine if something is a security. He also stated that it would be evident through discovery whether or not the sales and trades on Kraken met the requirements of the Howey test. Orrick stated:
Fundamentally, I do not believe that certification will materially advance the ultimate termination of the litigation. Discovery will establish whether Kraken’s sales, trades, and exchanges truly met all the Howey elements.
Kraken raised the issue of whether an investment contract could exist without a written agreement and questioned the need for any post-sale contractual obligations. The exchange, however, submitted that such elements were necessary to prove a violation of the securities laws. Orrick also highlighted that several courts have overturned Kraken’s position.
SEC Challenges Kraken’s Defenses
The legal complaint was filed by the SEC in November 2023. Kraken was accused of operating without registration as an exchange, broker, dealer, and clearing agency. The commission alleged that Kraken offered crypto assets classified as securities without adhering to the required registration process.
Kraken Launches Licensed Crypto Brokerage In Australia: Report
Earlier this month, the SEC also tried to exclude three of Kraken’s arguments. The SEC argued that these defenses were irrelevant and would merely result in unwarranted discovery requests. The commission said that Kraken was using “onerous” arguments that were not grounded in existing legal provisions.
As Kraken’s appeal has been dismissed, the SEC’s case against the exchange will continue unaffected. This decision marks a significant development for the case by emphasizing regulatory clarity and the enforcement of legal standards.
