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SEC Partially Wins Case Against Kraken, Judge Dismisses Key Defense On Crypto Regulation

The SEC achieved a victory in its legal battle against Kraken as a federal judge in California dismissed one of the exchange’s defenses.

By Ruholamin Haqshanas

Last Updated: Jan 27, 2025

Fact checked

By Akriti Seth

SEC Partially Wins Case Against Kraken, Judge Dismisses Key Defense on Crypto Regulation

The US Securities and Exchange Commission (SEC) achieved a partial victory in its legal battle against Kraken as a federal judge in California dismissed one of the crypto exchange’s central defenses.

On 24 January 2025, Judge William Orrick ruled against Kraken’s use of themajor questions doctrine,which claims that federal agencies cannot exercise powers not explicitly granted by Congress.

The SEC had filed a motion to strike three of Kraken’s defenses in a lawsuit accusing the exchange of offering unregistered securities.

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Judge Rules SEC’s Crypto Authority Aligns with Congressional Intent

Judge Orrick found that the SEC’s authority over digital assets did not exceed Congressional intent, stating that cryptocurrency, while growing, has not yet reached the economic significance of industries like energy or student loans—common examples in major questions doctrine cases.

However, Judge Orrick upheld Kraken’sfair noticedefense, allowing the exchange to argue that the SEC failed to provide clear guidance on whether its activities violated securities laws.

He noted that Kraken hadplausibly allegedit was unclear whether the Howey Test—used to determine if an asset qualifies as an investment contract—applied to secondary market transactions on its platform.

The SEC initially filed its lawsuit in November 2023, alleging that Kraken had been operating as an unregistered securities exchange since 2018. Although Kraken sought to dismiss the case, a federal court rejected its motion in August 2024.

Kraken continues to deny the SEC’s allegations and formally disputed them in a September filing.

This case is part of the SEC’s broader enforcement efforts in the crypto sector. Under Commissioner Hester Peirce, the agency has formed a task force to establish clearer regulatory guidelines for digital assets.

As the lawsuit proceeds, Kraken’s reliance on the fair notice defense could shape how courts interpret the SEC’s authority over cryptocurrencies, potentially influencing future regulatory decisions in the industry.

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Kraken Continues To Explore New Markets

Kraken has been exploring new markets and products recently, including launching a wrapped bitcoin token called kBTC on Ethereum and OP Mainnet, and eyeing a potential initial public offering (IPO), despite regulatory challenges with the U.S. Securities and Exchange Commission.

Furthermore, the exchange has formed a partnership with UK football club Tottenham Hotspur. As the football club’s crypto and Web3 partner, Kraken will serve as the club’s official sleeve partner for both its men’s and women’s teams.

In July, Kraken announced the expansion of its Custody services for institutional clients in the UK and Australia. The US-based company is also eyeing European Union, Switzerland, Cayman Islands, and British Virgin Islands in the near future.

Kraken is also actively looking to broaden its reach in Europe. Back in May 2024, Kraken entered the German market, partnering with local asset manager DLT Finance.

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Disclaimer
Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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Key Takeaways

  • Judge William Orrick dismissed Kraken's "major questions doctrine" defense.
  • The court allowed Kraken’s "fair notice" defense, enabling the exchange to argue that the SEC did not provide clear guidance on whether its activities violated securities laws.
  • Despite regulatory challenges, Kraken is actively expanding its global reach.

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Ruholamin Haqshanas
Ruholamin Haqshanas
Crypto Journalist

Ruholamin Haqshanas is an accomplished crypto and finance journalist with over three years of experience. He has been featured in various high-profile outlets, including Cryptonews.com, Investing.com, 24/7 Wall St, and Business2Community. Read More

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