Lawyers representing Kraken and the United States Securities and Exchange Commission (SEC) argued in a federal court about whether digital assets on the Kraken exchange could be considered securities.
At a June 20 hearing in the U.S. District Court for the Northern District of California, Kraken’s lawyer Matthew Solomon and SEC counsel Peter Moores presented their cases before Judge William Orrick.
The hearing focused on a motion to dismiss filed by Kraken in February.
Judge Orrick indicated he was “inclined to deny” the motion, suggesting it was “plausible” that digital assets were offered and sold as investment contracts on Kraken.
Solomon argued that Kraken’s case differed significantly from other litigated cases, such as those involving the SEC and Terraform Labs and Telegram.
He referenced Judge Analisa Torres’ decision in the SEC’s case against Ripple Labs, where the judge ruled the token was a security when sold to institutional investors, but noted the closest comparable case to Kraken’s was Coinbase’s.
The SEC’s argument hinged on treating Kraken as an “ecosystem” where tokens are sold as investment contracts, making them securities under the Howey test. Kraken’s legal team disputed these theories.
“I think conjuring up the notion of an ecosystem just for crypto — that’s not the way rules oughta be applied,” said Solomon.
“Crypto deserves no better than anybody else, but they oughta have the rules applied equally to them as they’ve applied to everyone else.”
Solomon added, “The SEC doesn’t just have to show that there is a security under Howey, they’ve gotta show that that security was brokered, traded, or cleared on Kraken.
That is impossible the way they’ve constructed their argument.”
Judge Orrick did not rule on the motion to dismiss during the hearing but indicated he was still inclined to deny it.
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He suggested that a year should be sufficient for discovery if the case proceeds.
The SEC filed its enforcement action against Kraken in November 2023. Prior to this, Kraken settled with the SEC in February 2023, agreeing to pay $30 million and cease offering staking services or programs to U.S. clients.
Although Ether was not specifically mentioned in the SEC v. Kraken case, it has been central in some crypto firms’ legal battles with the SEC.
In April, Consensys filed a lawsuit against the SEC after receiving a Wells notice regarding potential enforcement action based on Ether.
However, the SEC concluded its investigation on June 19, suggesting it considered Ether a commodity.
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