The U.S. Securities and Exchange Commission (SEC) recently lodged a complaint against Kraken, consisting of Payward Inc. and Payward Ventures Inc., asserting that the cryptocurrency trading platform operated without necessary registrations. Filed in San Francisco, the complaint spans violations dating back to September 2018. Kraken is alleged to have functioned as an unregistered exchange, broker, dealer, and clearing agency, combining these roles without proper registration, thereby depriving investors of crucial protections.

Kraken's purported activities include providing a marketplace for securities transactions, acting as an exchange; engaging in securities transactions for customers as a broker; functioning as a dealer by buying and selling securities for its account, and operating as a clearing agency by acting as an intermediary in settling transactions in crypto asset securities. The SEC also raises concerns about Kraken's business practices, citing deficient internal controls and poor recordkeeping, which could pose risks to customers. Notably, Kraken is accused of commingling customer funds with its own, potentially exposing customers to loss risks.

Kraken Faces Legal Heat

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, underscores the agency's position on Kraken prioritizing profits over investor protection. Seeking injunctive relief, disgorgement of profits plus interest, and penalties, the SEC's move aligns with a broader crackdown on cryptocurrency exchanges operating without proper registrations. Previous cases involve Binance and Coinbase. In February, Kraken agreed to a $30 million penalty and ceased offering crypto asset staking services.

CEO Dave Ripley rebuts the SEC's claims, defending Kraken's position of not listing securities. The ongoing debate surrounds the SEC's approach to cryptocurrency exchanges and the lack of clear regulatory pathways. This lawsuit adds to the regulatory scrutiny faced by the crypto industry, raising questions about the SEC's role in shaping the future of digital asset trading.