Kraken Digital Asset Exchange Faces Legal Trouble

On Monday, the U.S. Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court in the Northern District of California accusing Kraken’s parent companies Payward Inc. and Payward Ventures Inc. of operating an unregistered securities exchange, broker, dealer, and clearing agency. The complaint says Kraken made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities.

Internal Control and Recordkeeping Issues

The complaint also alleges that Kraken failed to properly register with the SEC and put customer assets at risk by commingling customer cash and digital assets with operational funds. This caused “a significant risk” to the customers, led to Kraken paying operational expenses directly from accounts that hold customer cash, and made it impossible to separate corporate assets from those belonging to customers.

The Legal Battle

This isn’t the first time Kraken has faced legal trouble. In February, they paid a $30 million penalty and closed its U.S. token-staking business rather than fight the SEC in court. The U.S. regulator is also currently involved in an ongoing matter with Coinbase for selling unregistered securities.

Kraken’s Response

Kraken, however, intends to “vigorously defend our position in court” against the SEC’s current charges. They criticized the complaint, alleging it “a technical argument” without evidence of fraud, market manipulation, customer losses due to hacking, or breaches of fiduciary duty.

Weaknesses in Asset Segregation and Financial Statements

A troubling aspect of the complaint alleges that Kraken failed to strictly segregate corporate assets from its customers, and had multiple control deficiencies in its financial statements. A financial statement for 2020 showed that $30.8 million worth of customer cash purportedly might have been in Kraken’s operating account. Furthermore, Kraken treated fiat in custodial accounts as its own and used customer cash for operational expenses.

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Will Kraken Survive?

The SEC’s allegations suggest that Kraken seems to be trying to hang on, but it remains to be seen how they will respond to the legal actions. Nonetheless, Kraken’s past compliance issues and customer protection may spell trouble for the company.


The SEC’s complaint against Kraken is a significant event in the battle for regulatory compliance in the digital asset market. Whether Kraken and other exchanges like it will be able to meet stringent SEC requirements or whether they will choose to alter their business models remains to be seen.

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By Team