A district judge has questioned cryptocurrency exchange Kraken’s move to dismiss a lawsuit filed by the U.S. Securities and Exchange Commission.
Judge William H. Orrick of the Northern District of California said in court Thursday that he “intends to deny” a motion to dismiss the lawsuit between the two men.
“I think it makes sense for cryptocurrency assets to be offered and sold as investment contracts,” Orrick said.
men November, S.E.C. be sued Kraken’s parent company, Payward, and Payward Ventures are accused of operating an online trading platform. Kraken dismissed the lawsuit. february. Since then, a group of eight U.S. state attorneys general has submitted a report. Amicus briefing Kraken argued that the SEC’s lawsuit exceeded the agency’s authority. contaminated Several documents assert that the SEC failed to meet elements of the Howey test.
The Howey test is based on a 1946 U.S. Supreme Court case frequently cited by the SEC to determine whether assets qualify as investment contracts, or securities. The SEC pushed back against Kraken and said the exchange was working on its behalf. dodge Investor protections required by securities laws. The SEC also argued that a written contract is not required to enter into an investment agreement.
Kraken has had its “work cut out” against them, Judge Orrick said Thursday.
Comparison to Coinbase
The SEC’s lawsuit against Coinbase was also filed frequently on Thursday. There, Judge Katherine Polk Failla decided not to do so. fire This is a lawsuit filed by the agency against the exchange. In that case, the SEC “plausibly” asserted that some cryptocurrency transactions on the Coinbase platform were investment contracts, Judge Failla said in March.
Matthew Soloman, representing Kraken, told the court: “Obviously this court will consider the case and the reasons for it and decide whether Judge Failla’s reasoning should be followed in that case.” “We don’t think you should.”
Solomon said Coinbase didn’t make the right decision. For example, the court created the concept of an ecosystem, which Kraken interpreted to include issuers, blockchains, promoters and others, Solomon said. He added that Justice Failla’s ecosystem language did not include buyers and sellers.
“Coming up with the concept of an ecosystem just for cryptocurrencies is not how the rules should be applied,” Solomon later said. “Cryptocurrencies don’t deserve better than anyone else, but the rules should apply to them the same way they apply to everyone else. I think the rules are being stretched to the breaking point with the Coinbase decision here today.”
Meanwhile, Peter Moores, an attorney for the SEC, said Coinbase “got it right.”
Moores also talked about how the Howey test encompasses more than just investment contracts. Kraken decided to reject the argument that a written contract is required for an asset to be a security.
The Howey test does not require a contract and is about “the substance of the issue,” Moores later added.
“If you only look at the form and the skeleton, you don’t actually look at the flesh surrounding it, and the flesh is really important. It’s about bringing the actual investment to life. There’s an opportunity here,” Moores said.
key questions
Kraken’s lawyers previously applied the leading questions rule in filings asking the judge to dismiss the case. This principle, often cited by cryptocurrency companies, states that agencies must obtain explicit congressional approval to decide on matters of national importance. The SEC argued that it was not “being granted new authority.”
“I don’t think this is an important question,” Orrick said. “It is not a significant expansion of regulatory authority.”
Orrick said later in the hearing that he would not change his mind on the main question doctrine.
At the end of the hearing, Judge Orrick ordered Kraken and the SEC to provide disclosure and said discovery would take about a year.
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