A California federal judge rejected Kraken’s “major questions doctrine” defense, marking a significant win for the SEC in its push to regulate the crypto industry under existing securities laws. However, Kraken’s “fair notice” defense will proceed, keeping its legal challenge alive. Kraken is one of the leading U.S. crypto exchanges.
Key Points:
- Court Ruling: Judge William Orrick dismissed Kraken’s “major questions doctrine” defense but allowed “fair notice” and “due process” defenses to proceed.
- SEC’s Position: The SEC maintains it is applying established securities laws, not overstepping its authority.
- Kraken’s Argument: Kraken claimed the SEC lacked clear authority over crypto but failed to convince the court.
- Fair Notice Defense: Kraken can argue it wasn’t clearly informed that its activities violated securities laws under the Howey test.
- Broader Context: The ruling reflects the SEC’s determination to enforce securities laws on crypto exchanges like Kraken, Coinbase, and Binance.
Short Narrative:
The SEC’s lawsuit against Kraken, filed in 2023, alleges that the exchange operated unlawfully by facilitating the trading of “crypto asset securities” without registration. Kraken challenged the SEC’s authority, invoking the “major questions doctrine,” which argues agencies need explicit Congressional approval to regulate vast economic sectors. The court rejected this, stating the SEC’s actions were within its established authority under securities laws.
However, the court upheld Kraken’s right to argue it lacked fair notice about the illegality of its actions. Kraken contends it wasn’t informed that certain digital assets on its platform might be classified as securities under the Howey test. This legal pathway allows Kraken to continue its fight against the SEC’s charges.
Actionable Insight:
Crypto businesses should pay close attention to this case as it underscores the SEC’s aggressive stance on crypto regulation. Ensuring compliance with securities laws, even amid regulatory uncertainty, is crucial to avoiding costly litigation.
Call for Information:
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