In a significant ruling, a federal judge in California has denied the cryptocurrency exchange Kraken's request to appeal a previous decision that allows a lawsuit from the U.S. Securities and Exchange Commission (SEC) to move forward. The judge determined that Kraken's appeal would serve only to prolong the case.
Judge William Orrick issued an order on November 18, dismissing Kraken’s motion for an interlocutory appeal. He stated that the SEC had sufficiently established claims that the crypto assets traded on Kraken qualified as investment contracts under the Howey test, thereby falling under the jurisdiction of securities regulations.
Orrick explained his decision, noting, "I do not believe that certifying this appeal would materially expedite the resolution of the litigation." He emphasized that, while the SEC's allegations seem plausible, only the discovery process will reveal whether Kraken's transactions genuinely satisfied all the elements outlined in the Howey test.
In September, Kraken sought Orrick's permission to contest an earlier ruling from August, which rejected its attempt to dismiss the SEC's case. The exchange argued that there existed "substantial ground for difference of opinion" regarding securities laws that a higher court might clarify, potentially leading to an early resolution of the dispute.
Kraken raised questions about the interpretation of investment contracts, particularly pertaining to agreements that lack formal contracts or post-sale obligations, and whether the Howey test necessitated investment in a company.
However, Judge Orrick countered this by pointing out that Kraken had failed to reference any cases since the Howey ruling that supported the idea that contractual formalities or post-sale duties were required to define an investment contract. He noted, "Numerous courts have tackled these issues and have ruled against Kraken's perspective."
This ruling follows the SEC's request earlier in November to dismiss three of Kraken's defenses, asserting that established laws clearly define what constitutes investment contracts and provided Kraken with adequate notice regarding the regulations.
The SEC initiated legal action against Kraken in November 2023, claiming that the exchange neglected to register as an exchange, broker, dealer, and clearing agency.
As of now, Kraken's legal representatives have not responded to requests for comments made outside regular business hours.
