Court Blocks Kraken’s Appeal, Paving Way for SEC Suit to Proceed

• The SEC initially sued Kraken in November 2023, alleging it operated as an unregistered securities exchange, broker, dealer, and clearing agency.
• SEC Chairman Gary Gensler will either resign or be fired by the incoming U.S. President, Donald Trump.
• The SEC has multiple ongoing lawsuits against crypto exchanges, providers, and platforms.

Cryptocurrency exchange Kraken has suffered a setback in court after a judge denied its attempt to appeal a previous ruling that allowed the U.S Securities and Exchange Commission (SEC) lawsuit to proceed.

Kraken Appeal

As per a Nov. 18 ruling from California District Court Judge William Orrick, Kraken’s appeal has been rejected as it would only serve to delay litigation without resolution.

“While the SEC has plausibly alleged its theory of securities violations against Kraken, only discovery will establish whether the sales, trades, and exchanges on Kraken truly met all the Howey elements… A complete record is necessary to answer those questions,” Judge Orrick noted.

In September 2024, the exchange filed for an interlocutory appeal a month after Judge Orrick ruled in favor of the SEC and rejected Kraken’s motion to dismiss. Kraken argued that important details, such as whether an investment contract has post-sale obligations or requires formal agreements, are yet to be answered.

Just as they have in many lawsuits in recent years, the SEC alleges that Kraken sold unregistered securities on its trading platform. Under the infamous Howey Test, the SEC asserts that Kraken sold securities tokens such as Cardano (ADA), Filecoin (FIL), Polygon (MATIC), and Solana (SOL).

With Orrick upholding the SEC’s views, the regulator can now proceed with the discovery process and demonstrate how said cryptos are subject to securities laws.

The SEC vs. Crypto

Kraken’s case with the SEC is by no means unique. It comes as part of a year-long series of litigations against, more or less, the entire crypto industry.

Major crypto exchanges and cryptos such as Coinbase, Gemini, Binance, decentralized exchange (DEX) Uniswap, and Ripple (XRP) have all been accused in—one way or another—of selling unregistered securities by the SEC.

It would seem that if the SEC were to find a way to set a precedent in one case, then the rest would fall like dominoes. Perhaps most significant of all is their case against XRP, which is one of several crypto tokens classified as securities by the SEC in its cases against crypto exchanges.

Closure appeared to be on the horizon after a judge ruled secondary market sales of XRP did not constitute a securities offering, though its initial sale to professional investors is still under question.

The SEC has since appealed this decision and has until Jan. 15, 2025, to present its final arguments.

Gensler Out

The SEC’s hawkish litigious actions against crypto could end prematurely as SEC chairman Gary Gensler may soon be out of a job.

Incoming U.S. President Donald Trump has promised to fire Gensler on day one of his presidency. Furthermore, rumors are circulating that Gensler could resign early. There are hopes that, without the litigious Gensler at the helm, this change of the guard could mean that the SEC would concede losses to the crypto industry.