On January 24, California federal judge William Orrick dismissed one of the defenses put forth by the cryptocurrency exchange Kraken in its case against the SEC.
The trading platform invoked the major questions doctrine to argue that Congress had not granted the regulator authority over cryptocurrencies. This U.S. Supreme Court decision had previously been employed by many companies in cases against the Commission.
In his ruling, Judge Orrick stated that the SEC is not claiming “extraordinary powers beyond what Congress could reasonably bestow.” He noted that cases involving the major questions doctrine “could have a significant impact on the American economy.”
“Cryptocurrency is a growing financial instrument, but it has not reached the level of economic significance comparable to the American energy market or billions of dollars in outstanding student loan debt,” he added.
However, the judge acknowledged the validity of Kraken’s defense regarding the lack of “fair notice” from the regulator about the alleged legal violations.
“The SEC will need to prove that any ordinary entity in Kraken’s position understands that, according to the Howey test, secondary market exchange transactions are investment contracts,” he said.
Back in November 2023, the Commission accused Kraken of offering unregistered securities in the form of digital tokens on its platform.
The agency also claimed that the company engaged in illegal activities as an exchange, broker, dealer, and clearing agency. Other allegations involved non-compliant business practices such as commingling client and corporate funds.
In February 2024, Kraken filed a motion to dismiss the SEC’s lawsuit, arguing that its consideration could set a “dangerous precedent” for the regulator’s authority. In August, the U.S. Federal Court denied the exchange’s demands.