SEC v. Kraken: Interlocutory Appeal Denied, Howey Test to Determine Fate

• A California judge rejects Kraken’s motion for an interlocutory appeal in the SEC lawsuit.
• Judge William Orrick states that certifying the appeal will only delay the case’s resolution.
• The judge highlights the plausibility of the SEC’s argument that Kraken’s assets qualify as securities.

In the SEC-Kraken lawsuit, Judge William Orrick rejected the exchange’s motion for an interlocutory appeal. The judge stated that the appeal would only delay the resolution of the ongoing lawsuit brought in by the Securities and Exchange Commission.

The case began in November 2023 when the SEC sued Kraken for allegedly operating as an “unregistered securities exchange, broker, dealer, and clearing agency.” The lawsuit accused Kraken of raking in hundreds of millions of dollars since September 2018 by illegally facilitating the trade of crypto asset securities.

Kraken’s Arguments

The lawsuit has moved through various phases, including the judge’s rejection of Kraken’s motion to dismiss the lawsuit. In September 2024, Kraken argued against the SEC’s allegations of breaching securities laws. The exchange argued that the cryptocurrencies do not qualify as securities under US law. Kraken bases its arguments on the assertion that cryptos, including Cardano (ADA), Algorand (ALGO), and Cosmos (ATOM), are not investment contracts.

Kraken filed for the interlocutory appeal in September, just a month after Judge Orrick’s ruling that favored the SEC. The judge stated that the agency might be correct in saying that cryptocurrencies sold on Kraken qualify as securities under the Howey Test. However, Kraken’s lawyers argued that the judge’s decision raised important legal questions. They claimed that an immediate appeal could expedite the lawsuit’s conclusion.

Read also: Kraken Asks The Court to Dismiss The SEC’s Case in Recent Filin

However, Orick, in his Monday ruling, denied Kraken’s request to appeal his earlier decision. He added that an immediate appeal would not speed up the case.

Further confirming his statements, Orrick emphasized the plausibility of the SEC’s arguments. He highlighted the necessity of the “discovery” phase, adding that uncovering whether Kraken’s transactions meet all the Howey elements remains crucial. The judge stated that certifying an appeal at this stage would cause delays.