Ripple CLO Backs Kraken in SEC Lawsuit “Bad News for the SEC”

As a seasoned analyst with years of experience navigating the complex landscape of financial regulations and digital assets, I find myself intrigued by the ongoing legal battles between crypto exchanges and the SEC. The recent developments in Kraken’s case against the SEC, backed openly by Ripple CLO Stuart Alderoty, are a clear indication that the tide may be turning in favor of these exchanges.


As a researcher following the legal proceedings closely, I’ve been observing the ongoing tussle between crypto exchange Kraken and the U.S. Securities and Exchange Commission (SEC) regarding allegations of securities law violations. In a recent development, US District Judge William H. Orrick refused Kraken’s petition to dismiss the SEC lawsuit. The judge has now given Kraken 20 days to respond to the complaint filed by the SEC. Ripple CLO Stuart Alderoty, in open support of Kraken, is standing firm amidst these legal challenges.

Ripple CLO Backs Kraken

In response to the recent court decision in the Kraken vs SEC case, Ripple’s Chief Legal Officer, Stuart Alderoty, highlighted some significant points. He emphasized that the court reaffirmed the absence of “crypto asset securities”, a stance that he believes is a blow to the SEC. Alderoty further criticized the SEC’s strategy of enforcement-based regulation, suggesting it heavily relies on the premise of disputes. In a tweet, he labeled this development as unfavorable for the SEC.

In a contrasting stance, Kraken’s Chief Legal Officer, Marco Santori, highlighted a recent federal court decision indicating that no tokens traded on Kraken are classified as securities. Yesterday, the judge expressed doubt about the regulators’ labeling of Kraken tokens as “crypto asset securities”, describing it as “at best unclear and at worst confusing”.

Santori pointed out that the Court had expressed disapproval of the SEC’s approach in their lawsuit against Kraken. Furthermore, he raised doubts about the SEC for persistently portraying Kraken as requiring a “written contract” to establish a security, implying it was essential in this context.

Despite facing criticism, the court has chosen to let the Kraken lawsuit proceed because it’s making the same distinction as in the Ripple case. In essence, the court views the token itself as not being a security, but the agreements surrounding the token might be. Santori clarified this point.

He said that the SEC has lost on the “tokens are securities” theory and thus can’t rely on it in going ahead. Moving forward the US regulator will need to prove that every transaction on Kraken will be a security, which it can’t, said Santori.

The Kraken’s Chief Legal Officer declared that the conditions set by the Securities and Exchange Commission (SEC) through their Howey Test won’t apply to Kraken. He underscored Kraken’s preparedness to demonstrate this during the discovery phase. Furthermore, he strongly expressed his confidence in Kraken’s victory in this legal battle. It’s important to note that Kraken isn’t fighting alone; other significant players in the crypto industry like Coinbase are also grappling with the SEC’s regulatory challenges.

SEC Lawsuit and Regulation-By-Enforcement Approach

Santori criticized the Securities and Exchange Commission (SEC) for its strategy of regulation through enforcement, stating that such an approach could pose significant challenges for the cryptocurrency sector. He argued that enforcing regulations across the entire crypto industry would be expensive, complex, and time-consuming, given the vast number of transactions for each asset. This, he warned, could result in drawn-out legal battles. Santori emphasized that this ruling supports Kraken’s position, which is that the SEC cannot adequately regulate cryptocurrencies solely through enforcement actions.

In response to the persistent requests from the Securities and Exchange Commission (SEC), participants in the crypto market are adapting, seeking a harmonious relationship with regulatory bodies. Notably, Binance, a significant crypto exchange, has been actively recruiting compliance staff following a lawsuit filed by the SEC over the past year and beyond.

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2024-08-24 11:22