A California federal court has denied the cryptocurrency exchange Kraken's request to appeal a ruling that allowed the U.S. Securities and Exchange Commission (SEC) to proceed with its lawsuit against the company.
Denial of Appeal
Judge William Orrick's decision, issued on November 18, explains that the SEC has sufficiently alleged that Kraken engaged in the sale of unregistered securities. Orrick rejected Kraken's motion for an interlocutory appeal, stating it would only delay the case's resolution. He highlighted that the SEC's claims, centered on whether the crypto assets traded and sold on Kraken qualify as investment contracts under the Howey test, must be further litigated.
Arguments from Both Sides
Kraken had argued that the case raised significant legal questions about securities laws, including whether an investment contract can exist without a formal agreement or post-sale obligations. The exchange hoped a higher court would address these questions and potentially dismiss the case. However, Orrick dismissed these arguments, noting that Kraken had failed to cite any case since the Howey decision where a court required formal contracts or post-sale obligations to establish an investment contract. He also pointed out that multiple courts have already rejected similar defenses.
Kraken's New Steps
Kraken's legal team has yet to issue a public statement regarding the latest decision. Meanwhile, Kraken is expanding its services for Australian clients by launching a broker service under a registered financial services license, offering access to crypto-based derivatives. This allows high-net-worth clients to execute advanced trading strategies and gain exposure to cryptocurrency price movements without directly holding the assets.
The ongoing case between Kraken and the SEC highlights the complex regulatory environment for cryptocurrencies. Final decisions could have significant implications for future legislation.
