A
federal
judge
in
California
indicated
that
he
is
inclined
to
let
the
US
Securities
and
Exchange
Commission’s
(SEC)
lawsuit
against
Kraken
proceed,
casting
doubt
on
the
exchange’s
efforts
to
have
the
case
dismissed,
according
to
media
reports.They’re
not
promising
anything.”
Solomon
added
that
the
SEC
cannot
merely
show
that
an
asset
is
a
security
but
must
also
show
that
Kraken
broker-traded
or
cleared
the
supposed
security.
He
said
that
the
SEC
cannot
prove
the
above
point
through
its
current
argument
because
one
cannot
trade
an
“ecosystem,”
“concept,”
or
“understanding.”
Kraken
advanced
similar
arguments
when
it
submitted
a
filing
to
dismiss
its
request
in
May.
Coinbase
and
Ripple
cases
According
to
The
Block,
Soloman
also
compared
the
ongoing
case
to
the
SEC’s
case
against
Coinbase,
where
the
ecosystem
concept
originated.
In
that
case,
Judge
Katherine
Polk
Failla
ruled
in
March
that
the
SEC
had
sufficiently
argued
that
some
crypto
transactions
on
Coinbase’s
platform
could
be
considered
investment
contracts.
Matthew
Soloman,
representing
Kraken,
urged
Judge
Orrick
to
depart
from
Judge
Failla’s
reasoning.
He
criticized
the
concept
of
a
“crypto
ecosystem”
used
in
the
Coinbase
ruling,
which
included
various
stakeholders
but
excluded
buyers
and
sellers.
Soloman
argued
that
this
interpretation
unfairly
stretches
regulatory
boundaries.
Meanwhile,
SEC
attorney
Peter
Moores
countered
that
the
Howey
Test
does
not
require
a
written
contract
and
emphasized
the
importance
of
the
substance
over
the
form
of
transactions.
He
maintained
that
the
framework
used
in
the
Coinbase
decision
was
appropriate
for
the
Kraken
case
as
well.
Kraken
has
also
invoked
the
major
questions
doctrine,
which
requires
clear
congressional
authorization
for
regulatory
actions
of
significant
national
impact.
However,
Judge
Orrick
appeared
unconvinced
by
this
argument,
stating:
“I
don’t
think
this
is
a
major
question.
It’s
not
a
significant
expansion
of
regulatory
authority.”
Soloman
urged
Judge
Orrick
to
consider
the
SEC’s
case
against
Ripple
—
which
found
that
the
company’s
programmatic
XRP
sales,
including
exchange
sales,
were
not
securities
—
to
determine
how
to
handle
secondary
market
sales
of
crypto.
Soloman
endorsed
Judge
Analisa
Torres’
decision
in
the
Ripple
case,
calling
it:
“A
very
practical,
very
well-reasoned
opinion.
And
all
it
says
is
look
at
the
groups
of
transactions
and
the
economic
reality
of
those
transactions.”
Applying
the
“economic
reality”
principle
to
Kraken,
Soloman
said
Kraken
is
not
trading
an
investment
contract,
understandings,
rights,
or
obligations
but
rather
“trading
a
digital
asset
alone.”
Kraken
insisted
that
this
is
not
sufficient
to
require
registration
with
the
SEC.
Mentioned
in
this
article
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Author: Mike Dalton
