Kraken Bitcoin

Kraken Loses ‘Major Questions’ Defense in SEC Lawsuit but Keeps Key Legal Arguments Alive

In a significant development, a California federal judge has dismissed Kraken’s “major questions doctrine” defense in its legal battle with the U.S. Securities and Exchange Commission (SEC). However, the court allowed Kraken’s “fair notice” and “due process” defenses to proceed, marking a nuanced victory for the cryptocurrency exchange.

The SEC sued Kraken in November 2023, accusing it of operating as an unregistered securities exchange, broker, dealer, and clearing agency. The agency alleges that Kraken has facilitated the trading of unregistered securities since 2018, generating hundreds of millions in revenue. In response, Kraken raised 18 legal defenses, including the “major questions doctrine,” which argues that government agencies lack authority to regulate entire sectors of the economy without explicit congressional approval.

Judge William Orrick dismissed this defense, asserting that cryptocurrency’s economic footprint, while growing, does not compare to industries like energy or student loans. He further emphasized that the SEC’s actions align with established securities laws rather than representing an overreach of its authority.

“The SEC is not asserting a transformative expansion in its regulatory authority,” the judge stated, ruling in favor of the agency’s interpretation of existing laws.

However, Kraken’s “fair notice” defense, which challenges whether the exchange was adequately informed about regulatory violations, remains intact. Kraken argues it was not clearly notified that certain digital assets could be classified as securities under the Howey Test, a legal framework defining investment contracts. Judge Orrick deemed this argument plausible, allowing the defense to proceed.

This case is pivotal as it underscores the SEC’s aggressive stance on crypto regulation. Kraken’s legal challenge mirrors similar battles faced by other major crypto players, including Coinbase and Binance, as the industry grapples with evolving regulatory oversight.

Also Read: Pepe (PEPE) Whale Moves $8.5M to Kraken: Will This Trigger a Price Rally or Further Decline?

The ruling highlights the ongoing friction between the cryptocurrency sector and traditional securities laws, setting the stage for future legal precedents in crypto regulation. As the SEC continues to pursue enforcement actions, the outcome of Kraken’s defenses could shape the regulatory landscape for digital assets in the U.S.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.

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