The U.S. Securities and Exchange Commission (SEC) secured a partial victory in its case against cryptocurrency exchange Kraken. On Jan. 24, a California federal judge dismissed Kraken’s “major questions doctrine” defense. The defense claimed Congress had not granted the SEC authority over cryptocurrency.
Judge William Orrick ruled that the SEC was not asserting powers exceeding its congressional authority. He emphasized that the doctrine applies only in cases of “highly consequential powers” impacting major sectors of the economy. While acknowledging cryptocurrency’s growing influence, the judge stated it had not reached the level of significance seen in areas like the energy market or student loan debt.
Kraken’s argument was one of three defenses the SEC sought to eliminate in its ongoing lawsuit. This ruling narrows the scope of the case, as other crypto firms, including Coinbase, Ripple, and Binance, have similarly argued against the SEC’s regulatory jurisdiction using the major questions doctrine.
Judge allows Kraken’s ‘Fair Notice’ defense to proceed
Despite dismissing one of Kraken’s defenses, Judge Orrick allowed the company’s “fair notice” argument to proceed. Kraken claimed that the SEC had failed to provide clear guidance about its alleged violations. The judge found this claim plausible, suggesting potential due process concerns in the regulator’s approach.
The SEC’s lawsuit, filed in Nov. 2023, alleges that Kraken has operated as an unregistered securities exchange since 2018. The regulator accuses Payward Inc. and Payward Ventures, Kraken’s operating entities, of violating federal securities laws.
The case has seen significant legal back-and-forth. In Aug. 2023, a U.S. federal court denied Kraken’s motion to dismiss the SEC’s lawsuit. Kraken responded in September by disputing the allegations in a formal filing.
Several cryptocurrency exchanges have been the target of similar enforcement actions by the SEC. It helps the agency push forward with its idea of a clearer framework of regulation for digital assets. Under the guidance of crypto friendly policies, these initiatives are led by the formation of a specialized crypto task force.
Kraken is just the latest face of the legal battle about regulating cryptocurrency and, more broadly, questions about the nature of currencies. The implications of the court’s rulings for the crypto industry and its dealings with U.S. financial regulators could stretch far beyond.
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