The Securities and Exchange Commission (SEC) has charged Kraken with operating an unregistered securities exchange as the agency continues its pursuit of crypto firms deemed to be transgressing securities laws. The SEC charged Payward Inc. and Payward Ventures, Inc., which do business as Kraken.
Kraken is currently the third largest crypto exchange in operation after Binance and Coinbase, according to Coinmarketcap. Both Binance and Coinbase have been the target of SEC enforcement actions.
The SEC claims that Kraken’s alleged failure to register with the SEC deprived investors of protections.
The Commission bulleted out the allegations:
- Provides a marketplace that brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact, and thus operate as an exchange;
- Engages in the business of effecting securities transactions for the accounts of Kraken customers, and thus operates as a broker;
- Engages in the business of buying and selling securities for its own account without an applicable exception, and thus operates as a dealer; and
- Serves as an intermediary in settling transactions in crypto asset securities by Kraken customers, and acts as a securities depository, and thus operates as a clearing agency.
The SEC’s complaint also alleges that Kraken commingles its customers’ money as well as crypto with its own. The Commission claims that Kraken’s own auditor had identified as “a significant risk of loss” to its customers.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said that Kraken decided to “reap hundreds of millions of dollars from investors” instead of complyaing with securities laws.
“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”
The SEC has long insisted that all digital assets are securities, with the exception of Bitcoin. This has put the crypto industry at odds as they seek a bespoke regime to regulate the young industry.
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 February of this year, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and pay a civil penalty of $30 million.