Ripple has stood by Kraken in their ongoing SEC battle.

A court ruling has challenged the SEC’s classification of digital assets.

The SEC’s “regulation-by-enforcement” approach has come under fire.

Ripple CLO Stuart Alderoty has publicly backed cryptocurrency exchange Kraken in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). The SEC alleges that Kraken violated securities laws by offering unregistered securities.

On Friday, a federal judge denied Kraken’s motion to dismiss the SEC’s lawsuit, requiring the exchange to respond to the complaint within 20 days. In response, Alderoty praised the court’s decision, emphasizing that it reaffirmed the notion that not all digital assets can be classified as securities.

SEC’s “Written Contract” Requirement Challenged by Kraken

Kraken’s Chief Legal Officer, Marco Santori, also celebrated the ruling, highlighting that the court found the SEC’s characterization of Kraken’s tokens as securities to be “unclear at best and confusing at worst.”  Sponsored

Santori criticized the SEC’s tactics, questioning the agency’s insistence on a “written contract” as a prerequisite for defining a security. Despite the court’s rejection of Kraken’s motion to dismiss, Santori explained that the underlying legal principles remain unchanged. 

The court in Kraken’s case, he said, has drawn the same distinction as in Ripple’s case: while a token itself may not be a security, the agreements surrounding it could be. Santori argued that the SEC’s strategy of proving every transaction on Kraken to be a security is untenable, given the sheer volume of transactions. 

He asserted that the SEC’s Howey Test criteria would not be met and that Kraken is prepared to demonstrate this in the discovery process. Kraken is not alone in facing regulatory scrutiny from the SEC. Coinbase, another major cryptocurrency exchange, is also embroiled in legal proceedings with the regulator.

SEC’s Regulatory Grip Tightens on Crypto

Santori expressed concern about the SEC’s “regulation-by-enforcement” approach, stating that it could have far-reaching implications for the cryptocurrency industry. He argued that applying this standard to the entire industry would be costly and time-consuming, ultimately leading to prolonged litigation. Sponsored

As the SEC continues to assert its authority over the cryptocurrency market, industry players are navigating a complex regulatory landscape. While the outcome of Kraken’s case remains uncertain, the legal battle has shed light on the ongoing debate over the classification and regulation of digital assets.

On the Flipside

The court’s denial of Kraken’s dismissal motion suggests the case has enough merit to proceed, potentially setting a challenging precedent for other crypto exchanges.

Kraken will need to prove that its transactions do not meet the Howey Test criteria, a complex legal standard.

Why This Matters

The case reveals the growing alliance within the cryptocurrency industry against regulatory overreach, as major players like Ripple and Kraken unite in challenging the SEC’s stance. This collaboration could influence the broader legal framework, setting crucial precedents for how digital assets are governed in the future.

In a recent court victory for Ripple, the judge ruled against the SEC. But will the SEC appeal? To learn more about the legal battle between Ripple and the SEC, read here: Ripple CLO Warns of SEC Appeal: Will the Victory Hold?Mt. Gox creditors are finally receiving compensation after a decade since the exchange’s 2014 collapse. Learn more about the settlement here:Kraken Confirms Mt. Gox Settlement as Creditors Cash In

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