• The judge in the Kraken case rejects the SEC’s broad classification of crypto assets as securities.
• The ruling aligns with Judge Torres’ decision in SEC v. Ripple, emphasizing the context of asset sales.
• Legal experts and the crypto community criticize the SEC’s approach and call for regulatory reform.

A federal judge presiding over the SEC’s case against Kraken has echoed the reasoning in the SEC v. Ripple decision, emphasizing the distinction between the crypto assets themselves and the context of their sales. The judge warned the SEC against conflating these issues, highlighting a broader judicial trend in crypto regulation.

Specifically, the judge clarified that they wouldn’t treat the crypto assets themselves as securities. Instead, the focus would be on whether their sales or exchanges on Kraken’s platform constituted investment contracts.

This approach aligns with Judge Analisa Torres’ reasoning in the SEC v. Ripple case. In her summary judgment, Judge Torres distinguished between the XRP token and the specific circumstances under which Ripple sold it. The ruling emphasized that Ripple’s programmatic sales to retail investors didn’t qualify as securities transactions.

Legal Experts Draw Parallels to Ripple Ruling

Legal expert Bill Morgan noted the similarities between the two cases in a post on X. He highlighted how courts are pushing back against the SEC’s broad classification of cryptocurrencies as securities. 

“The judge is applying exactly the same approach as Judge Torres,” Morgan stated in his commentary, emphasizing the growing judicial consensus.

Stuart Alderoty, Ripple’s Chief Legal Officer, who initially brought attention to the ruling, criticized SEC lawyers for persisting with what he described as “old games” that had led to repeated admonishments from the court.

Alderoty warned that such conduct risks undermining the SEC’s efforts to modernize its approach to crypto regulation under its “Crypto 2.0” initiative.

The recent rulings in the Kraken and Ripple cases have sparked strong reactions from the cryptocurrency community. Many are voicing frustrations over the SEC’s enforcement strategies.

Community members have called for the dismissal of the SEC’s lawsuits, particularly against Ripple Labs, labeling these cases as unnecessary and harmful. They argue that the prolonged legal battles have taken a toll on the cryptocurrency market and its participants, who have spent years working toward broader adoption and innovation.

Related: SEC Forms Crypto Task Force Led by Hester Peirce: Ripple Reacts

Structural Reforms within the SEC

Calls for structural reform within the SEC are growing louder, with many urging a complete overhaul of the agency’s leadership. A commenter suggested that retaining officials who operated under prior controversial policies could hinder progress. 

Some believe that only a sweeping change, including replacing commissioners and attorneys, can restore trust and create a more effective regulatory environment.

A community member has also urged remaining SEC commissioners, such as Hester Peirce and Mark Uyeda, to proactively address the agency’s shortcomings. 

Related: “Common Sense” Returns to SEC Under Atkins, Peirce, and Uyeda

Notably, the current SEC leadership is under Uyeda, who is serving as acting chair. In his first week in office, he constituted a crypto task force to address regulation. Moreover, the SEC has rescinded the controversial SAB 121.