California Judge Rejects Kraken’s Bid for Interlocutory Appeal

Kraken’s Argument for Appeal Falls Short

Kraken, the second-largest crypto exchange in the U.S., filed for an interlocutory appeal in September. This type of appeal challenges a judge’s non-final decision while other parts of the case proceed. The appeal followed Judge Orrick’s August ruling, where he determined the SEC had plausibly argued that certain cryptocurrencies sold on Kraken’s platform could qualify as securities under the Howey Test.

In its motion, Kraken contended that Orrick’s ruling raised “a controlling question of law” and that an immediate appeal could “materially advance the termination of the litigation.” However, Judge Orrick disagreed, asserting in his Monday ruling that such appeals are “entirely discretionary” and that granting one would not accelerate the case’s resolution.

“While the SEC has plausibly alleged its theory of securities violations against Kraken, only discovery will establish whether the sales, trades, and exchanges on Kraken truly met all the Howey elements,” Orrick stated. He emphasized that a full evidentiary record was required to reach a conclusion.

The SEC initiated legal action against Kraken in November 2022, alleging that the exchange operated as an unregistered securities exchange, broker, dealer, and clearinghouse. The agency is seeking disgorgement, civil penalties, and permanent injunctions against the crypto platform. Kraken, maintaining its innocence, previously moved to dismiss the case, but Orrick denied that motion in August.

With discovery now a crucial next step, the SEC’s allegations will undergo closer scrutiny. Kraken’s legal battle highlights the increasing regulatory pressure on crypto exchanges in the U.S.