The Securities and Exchange Commission (SEC) has filed a lawsuit against Kraken, a cryptocurrency exchange. The lawsuit adds Kraken to the growing list of digital trading platforms targeted by the SEC this year, including high-profile cases against Binance and Coinbase.
SEC Highlights Risks: Kraken’s Multifaceted Operations
The SEC’s complaint contends that since at least September 2018, Kraken has unlawfully facilitated the trading of crypto asset securities, amassing hundreds of millions of dollars. The regulatory body accuses Kraken of integrating the functions of an exchange, broker, dealer, and clearing agency without the requisite registrations, thereby depriving investors of essential protections.
According to the SEC, the exchange’s failure to register these functions has left investors without safeguards such as SEC inspection, recordkeeping requirements, and protection against conflicts of interest. The complaint outlines the exchange’s alleged roles as an exchange, broker, dealer, and clearing agency, emphasizing its failure to comply with legal obligations.
The SEC also raises concerns about the exchange’s business practices, deficient internal controls, and poor recordkeeping, suggesting that these practices pose risks to its customers. Notably, the exchange is accused of commingling customer funds and crypto assets with its own, creating a substantial risk of loss for investors.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated, “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws.” He emphasized the prevalence of such choices in the cryptocurrency space and expressed the SEC’s commitment to holding Kraken accountable.
The SEC’s complaint, filed in federal district court in San Francisco, seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties. In response, the exchange CEO, Dave Ripley, asserts its disagreement with the SEC’s complaint, maintaining that it does not list securities and plans to defend its position vigorously.
Moreover, the exchange had previously agreed to cease offering securities through crypto asset staking services in February of this year, agreeing to pay a $30 million civil penalty. The Division of Enforcement’s Crypto Assets and Cyber Unit conducted the SEC’s investigation into Kraken.
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