Kraken Sued by the SEC for Operating an Unregistered Exchange
- The Securities and Exchange Commission (SEC) filed a lawsuit against Kraken in federal court on November 20.
- The SEC claims that the firm operated as an unregistered securities exchange, broker, dealer, and clearing agency.
- The regulator also alleged that Kraken commingled up to $33 billion worth of customer assets with its own.
- Senator Cynthia Lummis criticized the SEC’s actions, asking Congress to draft clear rules for the agency to follow.
Kraken, a leading digital asset trading platform based in San Francisco, United States, has been sued by the US Securities and Exchange Commission (SEC) for operating an unregistered securities exchange, broker, dealer, and clearing agency in the region. This will be the second time that US authorities have targeted the exchange.
According to a complaint filed on November 20 in the San Francisco federal court, the SEC claimed that since 2018, Kraken has operated a platform that has illicitly allowed customers to buy and sell cryptocurrencies. Further, it has been confirmed that the crypto exchange will defend itself in court and does not agree with the charges imposed by the SEC.
The regulator still believes that cryptocurrencies are investment contracts and therefore come under US securities law. On the other hand, Kraken and other leading exchanges like Binance and Coinbase have pointed out that this is not true.
The SEC said that Kraken allowed users to buy and sell crypto illegally and “created risk for investors and taken in billions of dollars in fees and trading revenue from investors without adhering to or even recognizing the requirements of the US securities laws that are designed to protect investors,” while adding:
“Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange, and clearing agency with respect to these crypto asset securities.”
The SEC also accused Kraken of commingling customers’ assets. The regulator alleges that due to the exchange’s business practices and “deficient” internal controls, the trading platform commingled up to $33 billion worth of customer assets with its own. This caused a “significant risk of loss” for its clients, noted the SEC.
“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,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, while adding:
“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.”
As reported earlier by Bitnation in February, Kraken settled a lawsuit with the SEC, paying $30 million. The regulator filed a lawsuit against the exchange over its staking services, claiming that it failed “to register the offer and sale of their crypto asset staking-as-a-service program.”
It is crucial to mention here that Senator Cynthia Lummis commented on the lawsuit filed by the SEC, stating that “crypto asset companies have repeatedly tried to get guidance from the SEC only to be hit with enforcement actions, causing unnecessary harm to consumers.”
The American attorney and politician serving as the junior United States senator from Wyoming asked the Congress to “pass a regulatory framework to provide clear rules to the SEC on what is a security and what is a commodity.”