SEC Initiates Fresh Lawsuit Accusing Kraken of Operating Unregistered Online Trading Platform
Mitchell Nixon
The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Kraken, alleging securities laws breaches.
The SEC claims Kraken acted as a broker, dealer, exchange, and clearing agency for crypto asset securities without registering, posing investor risks while amassing billions in fees.
Kraken’s practices, controls, and record-keeping are accused of heightening investor risks, contrasting with regulations for registered securities intermediaries. The SEC underscores the importance of registration and oversight for safeguarding investor assets and preventing conflicts of interest, emphasising their significance in maintaining the integrity of U.S. capital markets.
“Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange and clearing agency with respect to these crypto asset securities. In doing so, Kraken has created risk for investors and taken in billions of dollars in fees and trading revenue from investors without adhering to or even recognizing the requirements of the U.S. securities laws that are designed to protect investors,” the SEC stated in its court filing.
In this latest lawsuit, the regulator asserts that Kraken compounded a “significant risk” by intermixing as much as $33 billion in customer crypto with its corporate assets, citing statements from Kraken’s independent auditor.
“Similarly, Kraken has held at times more than $5 billion worth of its customers’ cash, and it also commingles some of its customers’ cash with some of its own,” the suit stated. “In fact, Kraken has at times paid operational expenses directly from bank accounts that hold customer cash.”
The SEC aims to obtain a permanent injunction against the defendants, preventing future breaches of securities laws and demanding the return of wrongfully obtained profits. Additionally, it seeks to prohibit the exchange from operating as an unregistered broker, dealer, or clearing agency.
In February, the SEC previously sued Kraken’s parent companies, Payward Ventures and Payward Trading, for neglecting to register their crypto asset staking service. As part of this, the parent entities ceased the staking program and settled for a $30 million resolution.
Similar to previous cases, the federal regulator identified several tokens it considers unregistered securities, such as Algorand’s ALGO, Polygon’s MATIC, and NEAR.