US regulatory bodies, including the SEC and the Department of Justice [DoJ], have adopted a more stringent approach towards prominent players in the cryptocurrency sphere. On November 21, a significant enforcement action unfolded, targeting Binance, the world’s largest virtual currency exchange. The SEC filed charges against Payward Inc. and Payward Ventures Inc., collectively known as Kraken, accusing them of operating Kraken’s cryptocurrency trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.
The regulator alleges that Kraken, since at least September 2018, has illicitly generated hundreds of millions of dollars by facilitating the trading of crypto assets without registering its functions as an exchange, broker, dealer, or clearing agency, as mandated by law. The complaint contends that Kraken’s failure to register these functions has left investors without crucial protections, such as inspection, recordkeeping obligations, and safeguards against conflicts of interest.
Filed in a federal district court in San Francisco, the SEC’s complaint asserts that Kraken violated the registration provisions of the Securities Exchange Act of 1934. The commission seeks various remedies, including injunctive relief, conduct-based injunctions, disgorgement of unlawfully acquired profits with interest, and penalties.
SEC’s Action Has Affected XRP, ADA, SOL Trading
Earlier in the year, Kraken had agreed to halt the offering or selling of securities through crypto asset staking services or staking programs and pay a $30 million civil penalty.
In addition to scrutinizing the exchange’s operational practices and management of customer deposits, the SEC’s recent enforcement action has created challenges for the continued trading of several popular alternative coins, including Cardano [ADA], Polygon [MATIC], and Solana [SOL] in the United States.
Reactions to the lawsuit have been strong. Attorney Jeremy Hogan questioned the necessity of another lawsuit after Kraken had already paid a $30 million penalty in February, expressing skepticism about the extent of investor protection. On the other hand, business expert Adam Cochran criticized the commission’s strategy of claiming Kraken as an unregistered alternative trading system [ATS] and labeling the tokens as securities without directly pursuing claims against the tokens themselves.
He emphasized the need for the crypto industry to establish regulated structures that shield it from hostile actions and unclear regulatory guidance. Despite the legal challenges, Kraken Exchange maintained a nonchalant stance, reassuring its users with a “Business as usual” post.