SEC Files Complaint Against Kraken for Operating Without Necessary Registrations

The U.S. Securities and Exchange Commission (SEC) has taken action against Payward Inc. and Payward Ventures Inc., known as Kraken, for allegedly operating their cryptocurrency trading platform without the required registrations. The complaint, filed in San Francisco, claims that Kraken has been violating regulations dating back to September 2018. Kraken is accused of functioning as an unregistered exchange, broker, dealer, and clearing agency, combining these roles without proper registration, leaving investors without crucial protections.

Allegations and Concerns Outlined in the Complaint

The SEC’s complaint outlines several concerns, including Kraken’s provision of a marketplace for securities transactions, effectively operating as an exchange; engaging in securities transactions for customers, acting as a broker; buying and selling securities for its own account, functioning as a dealer; and serving as an intermediary in settling transactions in crypto asset securities, operating as a clearing agency. The complaint also alleges that Kraken’s business practices, such as deficient internal controls and poor recordkeeping, pose risks to customers. Kraken is accused of commingling customer funds with its own, leading to potential loss risks.

SEC Seeks Injunctive Relief and Penalties

Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, emphasized the agency’s position on Kraken’s purported preference for profits over investor protection. The SEC is seeking injunctive relief, disgorgement of profits plus interest, and penalties. In February, Kraken agreed to a $30 million penalty and ceased offering crypto asset staking services.

Wider SEC Crackdown on Cryptocurrency Exchanges

This lawsuit is part of a larger SEC crackdown on cryptocurrency exchanges operating without proper registrations. Similar allegations have been made against other exchanges such as Binance and Coinbase. The SEC’s list of unregistered securities includes tokens like ALGO, MATIC, and NEAR. Kraken’s CEO, Dave Ripley, disputes the SEC’s claims and defends their position of not listing securities. The debate continues over the SEC’s approach to cryptocurrency exchanges and the absence of clear regulatory pathways.

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In conclusion, the SEC’s complaint against Kraken serves as a part of a larger effort to regulate the cryptocurrency market and ensure investor protection. The outcome of this legal action will have broader implications for the cryptocurrency industry and its regulatory framework.

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By Team