California Judge “Inclined to deny” Kraken Application for SEC Case Dismissal

A California judge, Judge William H. Orrick has stated that he is inclined to deny a motion before him to dismiss a case filed by the SEC against crypto trading platform Kraken. 

The district judge stated this in the courtroom on Thursday during a SEC and Kraken hearing, saying “I think it’s plausible that the crypto assets are offered and sold as investment contracts,” Orrick said.

Kraken had in February moved to dismiss a case filed against its parent company, Payward and Payward Ventures in November last year for allegedly operating an online trading platform. A group of eight  U.S. state attorneys general filed an amicus brief arguing the case was beyond the SEC’s authority.

Kraken has also filed multiple documents to prove that the SEC failed to satisfy elements of the Howey Test. The Howey Test is a test based on a 1946 U.S. Supreme Court case that  the SEC uses frequently to determine if an asset qualifies as an investment contract and, therefore, a security.

Responding, the SEC has alleged that Kraken was only trying to dodge investor protections required by securities laws, adding that a written agreement isn’t required to establish an investment contract. 

Citing Coinbase Case

The SEC cited its case against Coinbase to support its argument against Kraken. In the Coinbase case in which the SEC alleged that some COinbase transactions were investment contracts, Judge Katherine Polk Failla decided not to dismiss the agency’s case against the exchange in March.

Presenting his argument on Thursday, Matthew Soloman, who is representing Kraken, said: “Naturally this court will look to that case and its reasoning in trying to determine whether you should follow the reasoning of Judge Failla in that case.” “We don’t think you should.” 

Solomon argued that Coinbase case was not decided correctly, adding that:

“Conjuring up the notion of an ecosystem just for crypto, that’s not the way rules ought to be applied,” Solomon later said. “Crypto deserves no better than anybody else, but they ought to have the rules applied equally to them as they’ve applied to everyone else. In the Coinbase decision, I think here today, the rules are being stretched to the breaking point.”

SEC Crypto Crackdown

The SEC has been cracking down on the crypto industry strongly since last year. Top exchanges like COinbase, Binance, and now Kraken have been dragged to court by the agency. In his response, the SEC lawyer argued that the Coinbase case was decided correctly.

The case ended without a clear ruling as the Judge Orrick directed Kraken and the SEC to provide disclosures and said discovery should take about a year.