Court Upholds SEC in Kraken Dispute
Date: 2025-01-28 Author: Gabriel Deangelo Categories: BUSINESS
Kraken argued that the regulator does not have the authority granted by Congress to regulate cryptocurrency transactions, citing the fundamental question doctrine. This legal concept has been used in similar disputes against the SEC.
Judge Orrick ruled that the SEC’s actions did not exceed the reasonable authority that could be granted to it by Congress. In his opinion, cases falling under the fundamental question doctrine have the potential to significantly affect the U.S. economy. However, according to the judge, cryptocurrency, although a growing financial instrument, has not yet reached a level of significance comparable to the energy market or billions of dollars in student loan debt.
At the same time, the court upheld Kraken’s position regarding the lack of “fair notice” from the regulator about possible violations of the law. Orrick noted that the SEC would need to prove that the average market participant could understand that secondary exchange transactions on Kraken's platform fell within the definition of investment contracts under the Howey test.
Recall that in November 2023, the SEC charged Kraken with selling unregistered securities in the form of digital tokens. The regulator also stated that the company violated the law by acting as an exchange, broker, dealer, and clearing agency without the required registration. Among other things, Kraken was accused of mixing client funds with corporate funds, which violates the established rules.
In February 2024, Kraken attempted to have the lawsuit dismissed, arguing that such proceedings could create an undesirable precedent that expands the regulator's powers. However, in August of the same year, a federal court rejected the company's request.
