Kraken Faces Setback as Judge Rejects Appeal Bid in SEC Case

• Judge Orrick rejected Kraken’s appeal bid, allowing the SEC lawsuit to proceed.
• The court ruled that the SEC plausibly alleged that Kraken’s activities involved unregistered securities.
• Discovery will determine if Kraken’s transactions meet the Howey test criteria.

California Judge William Orrick has denied Kraken’s request to appeal a prior decision that allowed the U.S. SEC lawsuit against the crypto exchange to move forward. In a November 18 ruling, Judge Orrick stated that certifying the appeal would not expedite the litigation and emphasized that the SEC had sufficiently alleged Kraken’s activities involved securities under the Howey test.

Orrick explained that while the SEC’s claims are plausible, the case’s resolution would hinge on discovering whether Kraken’s transactions meet the Howey criteria for investment contracts. “Certification will not materially advance the termination of the litigation,” he wrote, dismissing Kraken’s motion for an interlocutory appeal.

Kraken’s Legal Arguments

Kraken sought to appeal Orrick’s August rejection of its motion to dismiss the case, arguing that substantial questions remain about the application of securities laws. Specifically, Kraken questioned whether an investment contract must include a formal agreement or post-sale obligations to qualify under the Howey test.

Orrick countered these claims, noting that Kraken had not cited any precedents since Howey that required such elements for an investment contract. He also pointed out that multiple courts have addressed similar issues and ruled against Kraken’s position.

SEC Pushes Back

The SEC, which initiated its lawsuit against Kraken in November 2023, has accused the exchange of operating as an unregistered exchange, broker, dealer, and clearing agency. Earlier this month, the agency asked the court to strike three of Kraken’s defenses, arguing that the exchange’s discovery requests were irrelevant and overly burdensome.

The SEC argues that existing laws clearly define investment contracts and provide Kraken with adequate notice of its obligations under securities regulations. Orrick’s ruling aligns with the SEC’s stance, potentially narrowing Kraken’s defense options.

What’s Next for Kraken?

Kraken now faces an uphill battle as discovery begins to explore the specifics of its operations. The exchange’s legal team has yet to issue a public response to Orrick’s latest ruling. The outcome of the case could have significant implications for the broader crypto industry, as it may set a precedent for how securities laws apply to digital

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