763 F.Supp.3d 901
N.D. Cal.2025Background
- The SEC sued Payward, Inc. (d/b/a Kraken), alleging Kraken operates as an unregistered broker, dealer, exchange, and clearing agency for crypto asset securities in violation of federal securities laws.
- The SEC's complaint focuses on transactions in eleven identified crypto assets, arguing these constitute investment contracts subject to securities laws.
- Kraken admits it has not registered with the SEC but argues its activities do not involve regulated securities.
- Kraken raised eighteen affirmative defenses; the SEC sought judgment on three: the major questions doctrine, fair notice, and due process.
- The court previously denied Kraken’s motion to dismiss, finding the SEC plausibly alleged that the transactions constituted investment contracts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Major Questions Doctrine | Case doesn't trigger major questions doctrine. | SEC lacks clear authority over crypto; doctrine applies. | Defense dismissed; doctrine not implicated here. |
| Fair Notice (Due Process) | Laws and Howey test provide enough notice; defense fails. | No clear notice that Kraken's conduct violated law. | Kraken may proceed with defense; facts needed. |
| Due Process—Vagueness of Howey | Howey has well-settled meaning; not vague. | Howey is vague as applied to these transactions. | Kraken may proceed with defense; factual inquiry required. |
| Rule 12(c) Timeliness & Applicability | Motion is proper and timely under 12(c). | SEC’s motion is untimely or improperly styled. | Motion is timely; Rule 12(c) is appropriate for defenses. |
Key Cases Cited
- West Virginia v. EPA, 597 U.S. 697 (2022) (major questions doctrine applies only where agency claims extraordinary powers without clear congressional authorization)
- SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (investment contract analysis under federal securities laws)
- FCC v. Fox Television Stations, Inc., 567 U.S. 239 (2012) (fair notice required under due process)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (standard under Rule 12(b)(6) for pleading sufficient facts to state a plausible claim)