Cryptocurrency Exchange Crackdown Continues – SEC Targets Kraken
Kraken, a prominent crypto trading platform, faces legal action from the US Securities and Exchange Commission (SEC) for allegedly running its operations as an unregistered securities exchange, broker, dealer, and clearing agency.
The company has staunchly opposed the allegations and plans to vigorously contest them in a legal setting.
The SEC has accused Kraken of unlawfully generating hundreds of millions of dollars through its crypto trading business over the past five years, potentially longer. While the classification of crypto transactions as ‘securities’ remains a debated issue, the SEC persists in enforcing regulations despite this ambiguity. According to the Commission’s complaint dated November 20, 2023:
“The SEC alleges that Kraken has integrated the conventional roles of an exchange, broker, dealer, and clearing agency without fulfilling the mandatory registration requirements with the Commission.”
The SEC’s complaint emphasizes that Kraken’s unregistered status deprived investors of crucial protections, such as oversight by the SEC, obligatory recordkeeping, and mechanisms to prevent conflicts of interest.
Moreover, the SEC contends that Kraken mixed customer funds and crypto assets with its operational finances, alleging that the exchange used customer cash to cover operational expenses directly. These actions, identified by the exchange’s auditor as posing “a significant risk of loss” to customers, are highlighted in the complaint.
Kraken has strongly refuted the charges and aims to engage in a legal battle, potentially signaling the start of a protracted legal confrontation with the SEC in the crypto sphere.