After Binance and Coinbase, the US SEC sues crypto exchange Kraken
The US Securities and Exchange Commission (SEC) is continuing its crackdown on crypto exchanges, this time charging Kraken (Payward Inc and Payward Ventures) for allegedly “operating as an unregistered securities exchange, broker, dealer, and clearing agency”.
Kraken is the latest crypto exchange to be charged by the SEC
The regulator claims that since “at least” September 2018, Kraken has made “hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities”.
In a press release, the SEC alleges that “Kraken intertwines the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law”.
“Kraken’s alleged failure to register these functions has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others,” it adds.
The regulator further alleges that “Kraken’s business practices, deficient internal controls, and poor recordkeeping practices present a range of risks for its customers”, accusing the firm of commingling customer money with its own and paying for operational expenses directly from customer accounts.
“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,” comments Gurbir Grewal, director of the SEC’s enforcement division.
The move comes after the SEC filed complaints against fellow crypto heavyweights Binance and Coinbase in June.
Kraken disagrees
In a statement on its website, Kraken says it disagrees with the allegations and aims to “vigorously defend” itself in court.
“The complaint against Kraken alleges no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty,” the firm says.
“It includes big dollar amounts but does not allege a single one of those dollars is missing or misused – no ponzi scheme, no failure to maintain adequate reserves, and no failure to preserve the identity of client funds 1:1.”
“Instead, the complaint makes a technical argument: that Kraken’s business requires special securities licenses to operate because the digital assets we support are really ‘investment contracts’. This is incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy,” Kraken says.
As for demands from the SEC to register, Kraken states: “The allegation is hollow; there is no such thing as an exchange, broker dealer, or clearing agency for investment contracts. The SEC is demanding compliance with a regime that doesn’t exist.”
In September, Kraken secured its electronic money institution (EMI) licence from the Central Bank of Ireland, while also successfully registering as a virtual asset service provider (VASP) in Spain.
