Coinspeaker
SEC Charges Kraken Again for Unregistered Securities Trading and Commingling User Funds
The United States Securities and Exchange Commission (SEC) has announced a lawsuit against San Francisco-based crypto exchange Kraken for allegedly operating an unregistered securities exchange. The SEC’s court complaint is also accusing Kraken of commingling up to $33 billion in user funds.
SEC Accuses Kraken of Multiple Acts of Misconduct
According to a Monday press release from the SEC, Kraken operates as an unlawful broker, dealer, and clearing agency. The Commission states that the crypto exchange has earned several hundred million dollars helping users buy and sell crypto asset securities since at least September 2018. It also said that Kraken failed to register its broker, dealer, and clearing services with the SEC as required by law.
The November 20 complaint names several cryptocurrencies Kraken facilitates as securities. They include Algorand (ALGO), Cardano (ADA), Dcentraland (MANA), Solana (SOL), Filecoin (FIL), Cosmos (ATOM), Polygon (MATIC), OMG Network (OMG), Near (NEAR).
In addition to accusations of running an unregistered securities exchange, the SEC says Kraken engaged in unlawful business practices, including poor recordkeeping, and inadequate internal controls. In addition, the press release alleges the exchange pays operational expenses from accounts that hold customer funds. Apparently, Kraken’s auditor had warned that the acquisition puts customers at “a significant risk of loss.”
The Director of the SEC’s Division of Enforcement Gurbir S. Grewal said:
“We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.”
The SEC filed its lawsuit in federal court in San Francisco, accusing the exchange of violating the Securities Exchange Act of 1934. The suit seeks conduct-based injunctions, injunctive relief, penalties, and disgorgement with interest. It was said:
“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”
Kraken Denies Allegations
Kraken has refuted the SEC’s accusations. A company spokesperson told Decrypt that Kraken will “vigorously defend [its] position” as it does not list securities. The spokesperson expressed disappointment at the SEC’s decision to continue enforcement action instead of providing regulatory clarity. Kraken believes this stifles innovation and US competitiveness in the sector. According to the spokesperson, Congressional action is the best way to solve the problem.
This is the second time the SEC is bringing a suit against Kraken. The Commission had charged Kraken earlier this year as part of its enforcement action in the crypto sector. In February, Kraken settled a suit with the SEC without accepting or denying the Commission’s charges. Kraken agreed to pay a $30 million fine and suspend crypto staking for its customers in the US. SEC Chair Gary Gensler noted at the time that all types of staking and services that qualify as investment contracts offered in exchange for investor funds must provide proper disclosure and safeguards according to US securities laws.
SEC Charges Kraken Again for Unregistered Securities Trading and Commingling User Funds
