SEC Sues Kraken

The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Kraken, accusing the platform of commingling customer funds and failing to register as a securities exchange, broker, dealer, and clearing agency.

The SEC's complaint, filed in San Francisco federal court on 20 November, asserts that since 2018, Kraken operated as an unlawful platform facilitating the trading of cryptocurrencies.

The lawsuit, part of the SEC's broader effort led by Gary Gensler to regulate the crypto space, contends that crypto assets should be considered securities contracts under U.S. law.

The SEC accuses Kraken of acting as a broker, dealer, exchange, and clearing agency without registering with the SEC.

SEC stated:

"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."

According to the SEC, Kraken paid operational expenses directly from accounts containing customer assets, a practice criticised for the associated conflicts of interest and risk to investors.

Gurbir Grewal, SEC enforcement division director, stated,

"Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,"

Kraken's Stance

Kraken's spokesperson countered, expressing disagreement with the SEC's claims.

Kraken's CEO, Dave Ripley, posted on X (formerly known as Twitter):

Kraken's response emphasised their disagreement with the SEC's complaint.

The crypto exchange also criticised the SEC's regulatory approach, labelling it "regulation by enforcement".

"It is disappointing to see the SEC continue down its path of regulation by enforcement, which harms American consumers, stunts innovation and damages U.S. competitiveness globally,"

Legal Consequences Sought by SEC

The SEC seeks penalties, injunctive relief, and the return of "ill-gotten gains" from Kraken, alleging violations of the Securities Exchange Act of 1934.

Kraken had previously reached a $30 million settlement with the SEC on 9 February, agreeing to stop offering crypto-staking products and services to U.S. customers.