A federal judge in California suggested he might allow the US Securities and Exchange Commission’s (SEC) lawsuit against Kraken to proceed, casting doubt on the exchange’s motion to dismiss the case.

Judge William Orrick expressed a tendency to deny Kraken’s dismissal request, noting that it is "plausible" the digital assets on Kraken’s platform are "offered and sold as investment contracts," according to media reports.

FOX Business reporter Eleanor Terrett noted that the judge seemed to agree with the SEC's arguments both at the start of the hearing and after reviewing the briefings from each party. Lawyers she consulted believe the case will likely enter the discovery phase based on the June 20 proceedings.

However, Judge Orrick had not made a final decision by the end of the hearing and planned to review both sides' arguments further.

Kraken's lawyer, Matthew Solomon, argued against the SEC’s "ecosystem" claim, which states that Kraken promotes digital assets through specific web pages. Solomon countered that Kraken is not promoting or promising anything and that the SEC must prove Kraken brokered or traded the supposed security, which he claims it cannot do with its current argument.

In a comparison to the SEC’s case against Coinbase, Solomon urged Judge Orrick to diverge from Judge Katherine Polk Failla’s reasoning, which supported the SEC’s claim that some crypto transactions on Coinbase’s platform could be considered investment contracts. Solomon criticized the "crypto ecosystem" concept used in the Coinbase case, arguing it stretches regulatory boundaries unfairly.

SEC attorney Peter Moores countered that the Howey Test doesn’t require a written contract, emphasizing the substance over the form of transactions. He maintained the framework from the Coinbase decision was suitable for Kraken’s case as well.

Kraken also invoked the major questions doctrine, which demands clear congressional authorization for significant regulatory actions. Judge Orrick appeared unconvinced by this argument, stating it does not constitute a major question or significant regulatory expansion.

Solomon referenced the SEC’s case against Ripple, which concluded that Ripple’s programmatic XRP sales were not securities, urging Judge Orrick to consider this precedent for secondary market sales of crypto. Solomon described the Ripple ruling as practical and well-reasoned, emphasizing that Kraken is trading digital assets alone, not investment contracts or related rights.

Kraken maintained that this does not necessitate SEC registration.