FILE PHOTO: Kraken cryptocurrency exchange logo is seen in this illustration taken July 28, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
San Francisco: Cryptocurrency platform Kraken must face a US Securities and Exchange Commission (SEC) lawsuit accusing it of operating an unregistered securities exchange, a judge has ruled.
“The SEC has plausibly alleged that at least some of the cryptocurrency transactions that Kraken facilitates on its network constitute investment contracts, and therefore securities, and are accordingly subject to securities laws,” US District Judge William H. Orrick wrote in an opinion published last Friday in San Francisco federal court.
Kraken had asked the judge to dismiss the case filed by the SEC in November.
The ruling comes after Bloomberg News reported in early June that Kraken, one of the oldest crypto exchanges, was considering raising a final funding round ahead of a possible initial public offering.
The judge said the SEC’s labelling of Kraken tokens as “crypto asset securities” is “unclear at best and confusing at worst”.
Orrick went on to say that he’s reading the agency’s claims to be focused on assets offered as part of investment contracts, and not as allegations that individual cryptocurrency tokens are themselves securities.
Kraken’s chief legal officer hailed the ruling as a finding that none of the tokens trading on Kraken are securities.
“This is a significant win for Kraken, for the principle of clarity and for crypto users everywhere,” Marco Santori said in a post on the social media platform X. “It also confirms Kraken’s long-standing position that it does not list securities.”
An SEC spokesperson said the ruling confirms that “the framework used to identify securities for nearly 80 years still applies, regardless of the labels used”.
“Investors in crypto assets offered or sold as securities should get the same protections as investors in other securities, even when they are traded using intermediaries,” the spokesperson said in a statement.
The SEC under chair Gary Gensler argues most digital tokens are unregistered securities that should be subject to its oversight. Gensler is highly critical of crypto exchanges and the digital-asset industry for alleged non-compliance.
But the question of whether digital tokens are securities has divided courts.
A Manhattan federal judge ruled last year sales of Ripple Labs XRP token weren’t subject to SEC jurisdiction when offered to the public on exchanges, while other judges reached the opposite conclusion in the regulator’s cases against Terraform Labs Pte and Coinbase Global Inc, the largest US crypto exchange.
The Ripple ruling, which found XRP was covered by securities law only when sold to institutional investors, was hailed as a major victory for the industry. — Bloomberg
