A recent development in the ongoing legal battle between cryptocurrency exchange Kraken and the US Securities and Exchange Commission (SEC) has seen a federal judge denying Kraken’s request to dismiss the lawsuit filed against them. The SEC has accused Kraken of operating an unregistered securities exchange, broker, dealer, and clearing agency, with the regulator alleging that the exchange has been facilitating the trading of securities without the necessary regulatory approvals.
Kraken has vehemently denied these allegations, arguing that the SEC’s interpretation of securities laws is flawed and outdated. The exchange has maintained that its staking services, which are at the core of the SEC’s case, do not constitute an unregistered securities offering as claimed by the regulator. However, Judge William H. Orrick ruled in favor of the SEC, stating that the regulator has plausibly alleged that some cryptocurrency transactions facilitated by Kraken constitute investment contracts and are therefore subject to securities laws.
Implications of the Ruling
The ruling by Judge Orrick aligns with the SEC Chair Gary Gensler’s stance that most digital tokens are unregistered securities and should be subject to SEC oversight. This decision paves the way for the case, officially titled Securities and Exchange Commission v. Payward Inc., to proceed in the US District Court for the Northern District of California. Both Kraken and the SEC have yet to respond to requests for comment regarding the ruling.
This legal setback for Kraken comes at a crucial time, as the exchange reportedly plans to raise $100 million in a final funding round ahead of a potential initial public offering (IPO) in 2025. The ruling in favor of the SEC adds to the challenges faced by Kraken as it navigates the increasingly stringent regulatory landscape governing the cryptocurrency industry.
Legal Troubles in Australia
In addition to the legal challenges in the US, Kraken also faced a setback in Australia, where the Australian securities watchdog ruled against Bit Trade Pty, the operator of Kraken exchange in the country. The Australian Federal Court found that Bit Trade had failed to comply with Australian Securities and Investments Commission (ASIC) rules in distributing its margin trading products, specifically offering “margin extension” without the necessary compliance since October 5, 2021.
ASIC has announced its intention to seek financial penalties against Bit Trade for each instance of non-compliance with the Corporations Act. Both parties have seven days to agree on declarations and injunctions as they navigate the aftermath of the court ruling.
The legal challenges faced by Kraken in the US and Australia highlight the complex regulatory environment in which cryptocurrency exchanges operate. As regulators around the world increase their scrutiny of digital asset trading platforms, exchanges like Kraken must ensure compliance with the evolving regulatory requirements to avoid costly legal battles and maintain their reputation in the industry. The outcomes of these legal proceedings will have significant implications for Kraken and the broader cryptocurrency ecosystem as they navigate the complexities of regulatory compliance in a rapidly evolving landscape.
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