A California judge has ruled that the lawsuit filed by the Gary Gensler-led Securities and Exchange Commission against cryptocurrency exchange Kraken will proceed to trial, paving way for another high-voltage legal battle between the regulator and a high-profile blockchain-based company.
What Happened: The SEC’s case against Kraken, which was filed last November in the Northern District of California, accuses the trading platform of violating federal securities laws by failing to register as a broker, a similar charge that the regulating body brought against fellow cryptocurrency exchanges, Binance and Coinbase.
According to a Coindesk report Monday, Kraken’s motion to dismiss the SEC’s case was denied by U.S. District Court Judge William H. Orrick, who stated that 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.”
However, in a partial victory, the judge agreed that the cryptocurrencies named by the SEC in the lawsuit were “not themselves securities,” although the nature of their purchase and sale brings them within the purview of the act.
The SEC seeks to permanently bar Kraken from further securities violations and demands disgorgement of its “ill-gotten gains” along with other civil penalties.
Why It Matters: This lawsuit follows a series of legal actions by the SEC against major cryptocurrency exchanges.
In June 2023, Binance and its founder Changpeng Zhao were sued by the SEC for allegedly engaging in deceptive tactics, conflicts of interest, and evasion of law. Earlier that year, Coinbase received a Wells notice from the SEC, which led to concerns over the regulator’s approach to regulating the cryptocurrency market.
Both Binance and Coinbase, two of the biggest cryptocurrency exchanges, have decided to legally contast SEC’s claims. Judicial rulings earlier this year denied both of their motions to dismiss the case, paving way for the trial.
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