SEC's Kraken lawsuit does not raise "major questions"
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The Kraken application, in two modes. Photo: Tiffany Hagler-Geard/Getty
The Securities and Exchange Commission's lawsuit against the U.S.-based cryptocurrency exchange, Kraken, may proceed, a judge in the U.S. Court's Northern District of California ruled on Friday.
Why it matters: It is a victory for the agency, which has argued that its efforts to regulate cryptocurrency fall well within its existing powers, delegated by Congress.
- The attorneys for Payward, Inc., the parent company of the exchange, had argued in a motion to dismiss that the agency's action had tripped the Supreme Court's "major questions doctrine" by making arguments that would give the SEC "authority over any commodity that may increase in value."
What they're saying: "Of the few cases where the Supreme Court has found it proper to invoke the major questions doctrine, each involved a proposed regulation that would have far greater impact on the economy than what the SEC proposes here" Judge William Orrick wrote in his ruling.
- In short, the cryptocurrency business just isn't big enough to raise these sorts of concerns.
Zoom in: The heart of Kraken's motion and the judge's rulings concerned whether or not various crypto assets traded on Kraken could be "securities," and therefore under the agency's authority.
- The judge rules less decisively on this point, but went point by point illuminating why the SEC's case merited further consideration by the court.
- For example, the judge cites a prior ruling from the Ninth Circuit that found that "the security is not formed of one neat, tidy certificate, but a general 'scheme' of profit seeking activities."
- "Platforms for trading such crypto assets should register and ensure they have safeguards against fraud and manipulation," the SEC said in a statement, following the ruling.
What's next: The SEC has busy days ahead facing off against cryptocurrency exchanges in various courts.
- It recently moved to amend its case against Binance, potentially expanding the scope of its complaint, before the District Court in Washington, D.C.
- It prevailed over Coinbase in a similar motion to dismiss, before the Southern District of New York.
