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A judge has killed part of Kraken’s defense in a suit launched by the Securities and Exchange Commission that argued Congress hadn’t given the agency jurisdiction over crypto.
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The US Securities and Exchange Commission has partially won its bid to throw out Kraken’s defenses, with a California federal judge nixing the exchange’s argument that Congress hadn’t given the regulator power over crypto.
Judge William Orrick said in a Jan. 24 order that he axed Kraken’s “major questions doctrine defense,” one of the three defenses the SEC petitioned to have thrown out in its case against the exchange, which accuses it of offering unregistered securities.
Judge Orrick said that the SEC wasn’t asserting a “highly consequential power beyond what Congress could reasonably be understood to have granted it.”
The major questions doctrine says that government agencies can’t use powers that Congress hasn’t specifically delegated to them. Other crypto companies sued by the SEC, including Coinbase, Ripple and Binance, have cited the doctrine to argue that Congress hasn’t given the regulator authority over crypto.
Kraken has raised eighteen affirmative defenses in answer to the SEC’s complaint, including the three that Judge Orrick recently ruled on. Source: CourtListener
In his order, Judge Orrick said cases implicating the major questions doctrine “have the potential to impose massive influence over the American economy.”
“Cryptocurrency is a growing financial instrument, but it has not risen to a level of economic import that is reasonably comparable to the American energy market, or billions of dollars of outstanding student loan debt,” he added.
Judge Orrick ruled that the “fair notice” defense is still in play, as Kraken had “plausibly alleged” that the SEC didn’t give the exchange fair notice that it violated the law — which also could violate due process.
“The SEC would have to show that any ordinary entity in Kraken’s position would understand that the Howey test, as applied to the secondary market transactions on Kraken’s platform, establishes that those transactions are investment contracts,” he said.
“It has not made such a showing,” Judge Orrick said.
The SEC sued Kraken in November 2023, claiming the crypto exchange illegally operated as a securities exchange without first registering.
It also argued that Payward Inc and Payward Ventures, which operate as Kraken, have violated securities laws since 2018.
Related: Coinbase asks appeals court to rule crypto trades aren’t securities
The suit has undergone several stages, with a US federal court denying Kraken’s motion to dismiss the SEC lawsuit in August.
Kraken subsequently disputed the SEC allegations in a September filing that same year.
The SEC has targeted multiple crypto exchanges with similar actions but the agency has created a crypto task force dedicated to developing a framework for digital assets under the leadership of crypto-friendly Commissioner Hester Peirce.
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This article first appeared at Cointelegraph.com News
