Kraken had cited the "major questions doctrine" to support its claim. This legal principle asserts that government agencies cannot exercise powers not explicitly delegated to them by Congress.
Judge Orrick noted that the SEC was not claiming "extremely consequential powers beyond what Congress could reasonably be understood to have granted it." He emphasized that cases involving this doctrine could significantly impact the American economy.
Orrick remarked, "Cryptocurrency is a growing financial instrument, but it has not risen to a level of economic import that is reasonably comparable to the American energy market, or billions of dollars of outstanding student loan debt."
He also acknowledged Kraken's argument regarding the lack of "fair notice" from the SEC about alleged legal violations, stating that the SEC must demonstrate that an ordinary entity in Kraken's position would understand that transactions on its platform qualify as investment contracts under the Howey test.
In November 2023, the SEC accused Kraken of offering unregistered securities and operating illegally as an exchange, broker, dealer, and clearing agency. The agency also claimed that Kraken mixed customer funds with its own assets.
In February 2024, Kraken filed a motion to dismiss the SEC's lawsuit, arguing that its outcome could set a dangerous precedent for regulatory authority. In August, a U.S. federal court denied Kraken's motion to dismiss the SEC's claims.
