Oluwapelumi Adejumo reported on August 24, 2024, at 20:30 GMT+0000.

Recently, Kraken, a popular crypto exchange, announced some important legal updates regarding its case against the U.S. Securities and Exchange Commission (SEC). This comes even though the court decided not to dismiss claims that Kraken operated as an unregistered securities exchange.

On August 23, Judge William Orrick stated that the SEC has a solid case. Some of Kraken’s crypto transactions might actually qualify as investment contracts, which means they could fall under securities laws.

In response, Kraken’s Chief Legal Officer, Marco Santori, pointed out that the court did not label any tokens traded on Kraken as securities. He mentioned that the court found the SEC’s idea of a “crypto asset security” to be unclear and possibly misleading.

Additionally, Santori explained that the court criticized the SEC for misrepresenting Kraken’s position. They suggested that a written contract is necessary for a security to exist, which the court disagreed with.

While the court allowed the case to proceed, it made it clear that a token itself isn’t a security. However, agreements related to it could be. Santori emphasized that the SEC's claim that “tokens are securities” was completely rejected. Now, the SEC must prove that each transaction on Kraken meets the Howey Test criteria.

He also warned that enforcing this standard across the crypto industry, under the SEC’s regulation-by-enforcement strategy, would require extensive and costly investigations for potentially billions of transactions. Still, he remains confident that “Kraken will fight and Kraken will win” this case.

To help the industry, Santori suggested that Congress needs to pass a comprehensive market structure framework. This would provide clarity, protect consumers, and encourage the growth of blockchain technology.

Loss in Australia

Interestingly, the U.S. court ruling came on the same day that an Australian Federal Court ruled against Bit Trade, which is Kraken’s operator in Australia. The Australian Securities and Investments Commission (ASIC) had filed a lawsuit against Bit Trade, claiming it failed to meet regulatory obligations for its margin trading product.

Justice Nicholas ruled in favor of ASIC, stating that Bit Trade breached a section of the Corporations Act by not following local laws.

ASIC Deputy Chair Sarah Court remarked, “Today’s outcome serves as an important reminder to the crypto industry about the necessity of compliance with design and distribution obligations. Financial products must be distributed to consumers properly. Consumers deserve full legal protection when dealing with crypto-asset products, and we will continue to take action to ensure this happens.”

ASIC plans to seek financial penalties against Bit Trade, pending agreements on declarations and injunctions from both parties.