SEC-Kraken Legal Battle Continues with New Motion Filing

TLDR

• SEC files motion to dismiss Kraken’s key legal defenses in California court
• Motion claims Kraken had fair notice about crypto assets being classified as securities
• Kraken’s attorney calls it an “Election Day gambit” to avoid scrutiny of SEC policies
• Judge previously ruled SEC lawsuit against Kraken can proceed
• Timing coincides with speculation about SEC Chair Gensler’s potential departure

The U.S. Securities and Exchange Commission (SEC) has intensified its legal battle with cryptocurrency exchange Kraken, filing a motion in the Northern District Court of California to dismiss several of the exchange’s key legal defenses.

The motion, submitted on Tuesday, November 5, 2024, represents the latest development in the ongoing dispute between the federal regulator and one of the crypto industry’s major players.

The SEC’s motion specifically targets Kraken’s claims regarding the major questions doctrine and alleged due process violations.

These defenses have been central to Kraken’s legal strategy in fighting allegations that it operated as an unregistered securities exchange.

In its filing, the SEC maintains that Kraken received adequate prior notice about the potential classification of its crypto assets as “investment contracts” under securities laws. The regulator argues that Kraken’s assertion of lacking regulatory clarity is “without merit.”

The timing of the SEC’s motion has drawn criticism from Kraken’s legal team. Attorney Michael O’Connor characterized the Election Day filing as a tactical move designed to avoid scrutiny of what he termed the SEC’s “defective and inconsistent policies.”

Last night, while Americans exercised their sovereign right to choose their political future, Gensler's deputies at the SEC filed a motion seeking judgment in Kraken's case on defenses like fair notice and the major questions doctrine. This motion transparently attempts to avoid…

— Michael O'Connor (@JDMikeJ) November 6, 2024

This latest legal maneuver follows a previous court decision that allowed the SEC’s lawsuit against Kraken to proceed. That ruling, issued in August 2024, effectively ended Kraken’s attempts to have the case dismissed entirely.

The exchange has consistently maintained that its attempts to register with the SEC were “stonewalled” by the agency. Kraken has particularly focused its criticism on SEC Chair Gary Gensler’s approach to applying securities laws to cryptocurrency operations.

The case centers on 11 specific cryptocurrencies, including popular tokens like Solana (SOL), Cardano (ADA), and Polygon (MATIC), which the SEC claims should be classified as securities. Kraken has challenged this classification and demanded a jury trial to resolve the dispute.

In its court filing, the SEC argues that dismissing these defenses would help streamline the legal process. The agency stated that such action would

“maintain the proper scope of discovery, narrow summary judgment, save judicial and party resources, and prevent Kraken from trying to re-litigate the same issues repeatedly.”

O’Connor, representing Kraken, has pointed to precedent from the Ripple case, where a similar SEC motion was unsuccessful. He expressed confidence that Kraken’s defenses would hold up under legal scrutiny.

The motion comes at a time when the cryptocurrency industry faces increased regulatory oversight. The SEC has maintained its position that federal securities laws apply to digital assets offered as investments, leading to multiple enforcement actions against crypto firms.

Recent developments have added another layer of complexity to the case. Kraken has undergone internal changes, including staff reductions and the appointment of Arjun Sethi as co-CEO alongside David Ripley, as the company aims to become “leaner and faster.”

The legal battle occurs against a backdrop of potential leadership changes at the SEC. Industry observers note that SEC chairs typically step down during administrative transitions, leading to speculation about Gensler’s future following Donald Trump’s projected election victory.

Kraken continues to operate while challenging the SEC’s allegations. The exchange has emphasized its commitment to compliance while arguing for clearer regulatory guidelines for the cryptocurrency industry.

The case remains active in the Northern District Court of California, with both parties awaiting the court’s decision on the SEC’s motion to dismiss Kraken’s defenses.