Legal representatives for Kraken and the SEC recently presented conflicting arguments to a federal judge regarding whether the digital assets on the exchange should be classified as securities.
During a hearing on June 20 at the U.S. District Court for the Northern District of California, lawyers Matthew Solomon from Payward, also known as Kraken, and Peter Moores from the SEC appeared before Judge William Orrick to discuss a motion to dismiss that was filed by the exchange back in February. The judge hinted that he was leaning towards denying the motion, stating that it was plausible that digital assets were being offered and sold as investment contracts on the crypto exchange.
Solomon pointed out significant differences in previous cases litigated by the SEC against Terraform Labs and Telegram. He referenced Judge Analisa Torres’ ruling in the SEC’s case against Ripple Labs, where XRP was deemed a security when sold to institutional investors. However, he suggested that the most relevant case to Kraken’s situation was that of Coinbase.
On the other hand, the SEC argued that Kraken should be viewed as an “ecosystem” where tokens are sold as investment contracts, which would classify them as securities under the Howey test. The exchange’s legal team pushed back against this argument, with Solomon stating that the rules should be applied equally to crypto as they are to any other industry.
Judge Orrick did not make a ruling on the motion to dismiss during the hearing but indicated that he was still inclined to deny it after hearing arguments from both parties. He also mentioned that a year should be sufficient for discovery if the case progresses.
In related news, Kraken recently recovered $3 million from CertiK, bringing an end to a bug bounty saga. The SEC initiated enforcement action against Kraken in November 2023, following a settlement in February 2023 where Kraken agreed to pay $30 million and cease offering staking services to U.S. clients.
Although Ether (ETH) was not explicitly mentioned in the SEC v. Kraken case, it has been a focal point in legal battles between some crypto firms and the regulator. Reports in March suggested that the SEC was contemplating labeling ETH as a security and potentially taking enforcement actions against firms dealing with the token. However, the SEC closed its investigation on June 19, indicating that Ether is considered a commodity.
In the world of crypto legal battles, the SEC faces a formidable opponent in the form of Godzilla vs. Kong as it navigates the challenges posed by the industry’s legal firepower.