SEC Lawsuit Against Kraken
Kraken faces a lawsuit from the U.S. Securities and Exchange Commission (SEC) for alleged violations of securities laws
The SEC claims that Kraken functioned as a broker, dealer, exchange, and clearing agency for crypto asset securities without proper registration, potentially exposing investors to risks while accumulating substantial fees.
Kraken’s practices, controls, and record-keeping are accused of heightening investor risks, deviating from regulations mandated for registered securities intermediaries. The SEC emphasizes the criticality of registration and oversight in safeguarding investor assets, preventing conflicts of interest, and upholding the integrity of U.S. capital markets.
“Kraken, without registering with the SEC in any capacity, has simultaneously served as a broker, dealer, exchange, and clearing agency for these crypto asset securities. This has exposed investors to risks and led to the accumulation of billions of dollars in fees and trading revenue without adherence to or acknowledgment of U.S. securities laws intended to protect investors,” stated the SEC in its court filing.
In the current lawsuit, the regulator alleges that Kraken magnified a “significant risk” by mingling up to $33 billion in customer crypto with its corporate assets, referencing statements from Kraken’s independent auditor.
“Additionally, Kraken has held over $5 billion worth of its customers’ cash at times, commingling some of it with its own funds,” the suit noted. “Kraken has even used bank accounts containing customer cash to cover operational expenses.”
The SEC seeks a permanent injunction against the defendants to prevent future breaches of securities laws and recover wrongfully obtained profits. It also aims to bar the exchange from functioning as an unregistered broker, dealer, or clearing agency.
In a prior lawsuit in February, the SEC sued Kraken’s parent companies, Payward Ventures and Payward Trading, for failing to register their crypto asset staking service. As part of the settlement, the parent entities ceased the staking program and agreed to a $30 million resolution.
Similar to earlier cases, the federal regulator identified several tokens, including Algorand’s ALGO, Polygon’s MATIC, and NEAR, as tokens it believes are unregistered securities.
