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

Ripple CLO Stuart Alderoty has come out openly defending crypto exchange Kraken in the ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) over securities law violations. On Friday, US District Judge William H. Orrick denied Kraken’s appeal to dismiss the SEC lawsuit while asking the exchange to reply to the “complaint” within 20 days.

Ripple CLO Backs Kraken

Commenting on the recent ruling, Ripple CLO Stuart Alderoty cited some fine details of the court’s decision in the Kraken vs SEC lawsuit stating that the court has once again affirmed that there is no such thing as a “crypto asset security”. Alderoty also called it a setback for the SEC adding that the regulator’s approach of regulation-by-enforcement relies majorly on the dispute premise. “Bad news for the SEC,” he wrote.

On the other hand, Kraken’s Chief Legal Officer Marco Santori pointed out the Federal court ruling which shows that none of the tokens trading on Kraken are securities. Yesterday, the judge stated that the regulators’ ruling of Kraken tokens as “crypto asset securities” is “unclear at best and confusing at worst”.

Santori highlighted that the Court criticized the SEC lawsuit tactics. He also questioned the agency for repeatedly misrepresenting Kraken’s position by insisting that a “written contract” is necessary to define a security.

But despite this criticism why has the Court allowed the Kraken lawsuit to continue ahead? Santori explained that fundamentally, the court in Kraken’s case has made the same distinction as in Ripple’s case wherein a token isn’t a security but agreements around the token could be.

He said that the SEC has lost on the “tokens are securities” theory and thus can’t rely on it 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 CLO stated that SEC’s Howey Test criteria won’t be met while emphasizing Kraken’s readiness to prove this in the discovery process. Besides, he also asserted that “Kraken will fight and Kraken will win”. Kraken is not alone in this fight as other industry players like Coinbase are also facing the heat of SEC’s regulatory actions.

SEC Lawsuit and Regulation-By-Enforcement Approach

Santori also called out the SEC for its regulation-by-enforcement strategy adding that it can have broader implication for the crypto industry. He said that applying this standard pan crypto industry would be costly and time-consuming considering the billions of transactions for a given asset. This would ultimately lead to a prolonged litigation. Santori reiterated that the ruling validates Kraken’s stance that the SEC cannot effectively regulate crypto through enforcement alone.

Amid the ongoing SEC’s demand, crypto markets players also also adjusting to find a common ground with the regulators. Crypto exchange Binance is on a hiring spree for its complaince team recently after facing the SEC lawsuit over the past year and more.