Key Takeaways
- SEC alleges that Kraken failed to meet registration requirements as a securities exchange, broker, dealer, and clearing agency.
- Kraken has rejected the SEC’s accusations, asserting that it has not listed unregistered securities
Kraken, a major cryptocurrency exchange, is facing legal action from the U.S. Securities and Exchange Commission (SEC), which alleges that the platform operated as a securities exchange without obtaining the necessary registration.
The SEC contends that Kraken commingled customer funds and failed to meet registration requirements as a securities exchange, broker, dealer, and clearing agency.
In the lawsuit filed in a San Francisco federal district court, the SEC argues that many of the crypto assets traded on Kraken fall under the category of securities, making registration with the SEC mandatory.
The complaint further accuses Kraken of maintaining inadequate internal controls and poor recordkeeping practices, posing various risks to its customers, such as commingling customer and company funds.
The regulatory push by SEC aims to bring crypto assets under the SEC’s oversight, asserting that certain crypto assets are securities contracts according to U.S. law.
The lawsuit requests a court order to prevent Kraken from operating as an unlicensed exchange and seeks the disgorgement of ill-gotten gains along with interest and penalties.
The SEC alleges that Kraken’s deficient internal controls led to the commingling of up to $33 billion worth of customer assets with the platform’s own funds, exposing clients to a significant risk of loss. The complaint points out that Kraken used customer asset accounts to pay for operational expenses, creating conflicts of interest and jeopardizing investors’ funds.
Kraken, in response, rejects the SEC’s accusations, asserting that it has not listed unregistered securities and plans to vigorously defend its position. The exchange argues that the SEC’s commingling claims involve spending fees already earned and does not allege any missing user funds.
In a blog post, Kraken addressed the SEC’s commingling allegations, characterizing them as the platform using fees it had already earned. The SEC’s complaint lists 16 cryptocurrencies it considers securities, including Cardano.
This legal action follows the SEC’s increased scrutiny of the crypto sector in recent months. Notably, the SEC filed a lawsuit against Binance on June 5 for allegedly offering unregistered securities. Shortly afterward, the commission targeted Coinbase with a similar lawsuit, asserting that some popular cryptocurrencies on the platform qualify as securities.
