In a recent development, a US federal judge has denied crypto exchange Kraken’s request to dismiss the lawsuit filed by the Securities and Exchange Commission (SEC). The SEC alleges that Kraken has been operating an unregistered securities exchange, broker, dealer, and clearing agency, and has illegally facilitated the trading of securities since 2018. Despite Kraken’s arguments that the SEC’s allegations are unfounded and based on outdated regulatory frameworks, the judge ruled in favor of the SEC, stating that some of the cryptocurrency transactions facilitated by Kraken constitute investment contracts and are subject to securities laws.
The ruling aligns with SEC Chair Gary Gensler’s position that most digital tokens are unregistered securities subject to SEC oversight. This could have significant implications for other crypto exchanges and platforms operating in the rapidly evolving crypto industry, as they may also come under increased scrutiny from regulatory authorities.
The case, officially titled Securities and Exchange Commission v. Payward Inc., will proceed in the US District Court for the Northern District of California. Both Kraken and the SEC have yet to respond to requests for comment on the matter. This legal setback for Kraken comes at a crucial time, as the exchange reportedly plans to raise $100 million in a final funding round before pursuing an initial public offering (IPO) in 2025.
In addition to the SEC lawsuit, Kraken also faced legal troubles in Australia, where the Australian Federal Court ruled against Bit Trade Pty, which operates the Kraken exchange in the country. The court found that Bit Trade had been offering “margin extension” without complying with Australian Securities and Investments Commission (ASIC) rules since October 5, 2021. ASIC intends to seek financial penalties against Bit Trade for its non-compliance with regulations.
The legal challenges faced by Kraken in both the US and Australia highlight the regulatory uncertainties and risks associated with operating in the crypto industry. As regulatory authorities around the world ramp up their oversight of digital assets and trading platforms, crypto exchanges will need to ensure compliance with securities laws and other regulations to avoid facing similar legal action.
The denial of Kraken’s motion to dismiss the SEC lawsuit and the adverse ruling in the Australian case signal potential obstacles for the exchange and the broader crypto industry. As regulators crack down on unregistered securities offerings and non-compliance with regulations, crypto exchanges will need to navigate the evolving legal landscape carefully to avoid legal repercussions. The outcome of Kraken’s legal battles could have far-reaching implications for how crypto exchanges operate and comply with regulatory requirements in the future.