The U.S. Securities and Exchange Commission (SEC) has recently intensified its scrutiny of cryptocurrency exchanges. Kraken, following in the footsteps of Coinbase and Binance, now faces SEC allegations for operating without proper registration as a securities business in the U.S. The SEC’s lawsuit against Kraken also includes a detailed list of tokens it deems securities, many of which have been the subject of previous enforcement actions.
Allegations of Commingling Funds
The SEC’s lawsuit, filed in the U.S. District Court for the Northern District of California, accuses the San Francisco-based crypto exchange Kraken of mixing customer and corporate funds while operating as an unregistered broker, clearing agency, and dealer. The regulator cites instances where Kraken allegedly commingled up to $33 billion in customer crypto with its corporate assets, creating significant risk for its customers. Additionally, the SEC claims that Kraken used customer cash held in bank accounts to pay operational expenses.
Echoes of Previous Legal Battles
This lawsuit mirrors the SEC’s actions against other crypto trading platforms, including Binance and Coinbase, emphasizing the unregistered status of these exchanges. The SEC has also previously settled similar allegations with Bittrex’s U.S. wing.
Kraken’s Defense and the Ongoing Legal Saga
In response, Kraken has firmly disagreed with the SEC’s allegations, maintaining that they do not list securities and are committed to defending their position. The exchange criticizes the SEC’s approach of “regulation by enforcement” as harmful to American consumers and innovation. Kraken also advocates for Congressional action to provide clearer regulatory frameworks for the crypto market.
SEC’s Focus on Investor Protection
The SEC’s lawsuit highlights the risks associated with Kraken’s practices, such as failing to prevent conflicts of interest and mixing investors’ assets with its own. The regulator seeks a judgment to permanently enjoin Kraken from violating securities laws and operating as an unregistered exchange. The SEC also demands disgorgement of ill-gotten gains and a halt to Kraken’s unregistered activities.
Kraken’s Previous Legal Challenges and Current Stance
Kraken’s parent firms, Payward Ventures and Payward Trading, were sued by the SEC earlier for failing to register their crypto asset staking-as-a-service program. Kraken settled these charges by agreeing to stop the program and paying $30 million. Despite these legal challenges, Kraken asserts that their products remain unaffected and that they are fully committed to their U.S. and global clients.
