The U.S. Securities and Exchange Commission (SEC) has scored a partial victory in its case against Kraken, a cryptocurrency exchange. A federal judge in California has rejected Kraken’s use of the “major questions doctrine” as part of its defense.
SEC wins in killing Kraken’s major questions doctrine defense. Source: XWhat Is the Kraken v/s SEC Case About?
The SEC filed a lawsuit against Kraken in November 2023, accusing the exchange of offering unregistered securities. The regulator also claimed that Kraken’s parent companies, Payward Inc. and Payward Ventures, had been violating securities laws since 2018. In August 2023, a federal court denied Kraken’s attempt to dismiss the lawsuit, pushing the case forward.
What Is the Major Questions Doctrine?
The major questions doctrine states that federal agencies, like the SEC, cannot take actions that Congress hasn’t explicitly authorized. Kraken argued that Congress never gave the SEC the authority to regulate cryptocurrencies, so the agency couldn’t sue the exchange.
Why Did the Judge Reject This Defense?
Judge William Orrick ruled on January 24, 2025, that the SEC’s actions did not overstep its authority. He stated that cryptocurrency, while a growing market, hasn’t reached the level of economic impact seen in other cases involving the major questions doctrine, such as the energy industry or student loan debt.
According to the judge, the SEC’s enforcement actions fall within its reasonable jurisdiction, even though Congress hasn’t passed specific cryptocurrency regulations.
Although the judge rejected the major questions doctrine defense, Kraken’s “fair notice” argument is still valid. Kraken claims that the SEC failed to provide clear guidance about which activities violated securities laws. The judge acknowledged that Kraken had a plausible argument, stating the SEC would need to prove that any reasonable company in Kraken’s position would know it was breaking the law.
Kraken is one of several cryptocurrency companies facing lawsuits from the SEC. Other firms like Coinbase, Ripple, and Binance have also argued that the SEC lacks clear authority over the crypto market. This ruling could influence how similar cases proceed in the future.
Meanwhile, the SEC has formed a task force led by Commissioner Hester Peirce to create a regulatory framework for digital assets. Despite targeting multiple exchanges, the agency has faced criticism for its lack of clear crypto-specific rules.
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