Kraken’s Chief Legal Officer Marco Santori announced that the cryptocurrency exchange has won a significant victory against the U.S. Securities and Exchange Commission (SEC).
According to their statement, a federal court has ruled that tokens traded on Kraken are not securities, dealing a blow to the SEC’s ongoing regulatory approach to the crypto industry.
Santori noted that, as in the Ripple case, the court distinguished between the status of tokens themselves and the agreements surrounding their sale. “A token is not a security, but agreements around a token can be,” Santori explained. Santori noted that the SEC has “definitively lost” its core argument that all tokens are inherently securities and that theory can no longer be relied upon.
This decision follows an earlier decision by Judge William H. Orrick, who denied Kraken’s request to dismiss the SEC’s lawsuit. Judge Orrick noted that the SEC had reasonably argued that some crypto transactions at Kraken could be considered investment contracts and therefore subject to securities laws. Despite this, the latest ruling clarified that Kraken’s token listings themselves do not qualify as securities under current law.
According to Santori, the court criticized the SEC’s approach, calling the concept of “crypto asset security” “vague at best and confusing at worst.” The court also questioned the SEC’s tactics, noting that Kraken has consistently mischaracterized its legal stance, which the court found misleading.
But the case is not completely resolved. The court allowed the case to proceed to the discovery phase, where both sides will investigate whether certain transactions on Kraken meet the criteria set forth in the Howey Test, a legal standard used to determine whether an asset constitutes an investment contract.
Santori said Kraken was confident in its position, reiterating that the SEC would need to prove that every transaction contained all the required factors under the Howey Test, and that Kraken believed the SEC would fight to do so. “Kraken will fight and Kraken will win,” Santori said.
The broader implications of this decision could be profound for the crypto industry. Santori warned that the SEC’s enforcement-based regulatory approach, if implemented industry-wide, would lead to “extensive, expensive, and time-consuming discovery for each of the millions (billions?) of transactions in a given asset.”
“This decision confirms what we have been saying all along: the SEC cannot credibly regulate the cryptocurrency industry through enforcement,” Santori concluded.
*This is not investment advice.
