Kraken vs. SEC: Dispute Over Crypto Regulation Under Howey Test

The case between Kraken and the SEC revolves around the latter accusing the former of failing to register as a broker, clearinghouse, or exchange in violation of securities laws. Kraken disputes these claims, arguing that the cryptocurrencies listed in the SEC’s complaint should instead be classified as commodities rather than securities. In response, the SEC contends that it is simply enforcing its congressional mandate when requiring Kraken to register using the Howey test, which determines whether investments involve four specific criteria. Kraken, however, believes that satisfying all four of these criteria would significantly expand the SEC’s jurisdiction beyond what Congress originally intended, necessitating debate in Congress rather than being decided by the courts. The judge overseeing the case, Judge William H. Orrick, has scheduled a hearing for June 12th to address the matter. This development follows Kraken’s unsuccessful attempt to have the Second Circuit Court of Appeals weigh in on the issue of whether conventional securities rules apply to digital assets, and the SEC’s subsequent refusal to grant permission for this appeal. Other related cases include Coinbase’s own challenge to the Howey test and Prometheum’s contentious answer to compliance issues, both of which are running late. Ultimately, these cases demonstrate ongoing disagreement about the applicability of traditional securities laws to cryptocurrencies.