Crypto Crackdown Continues As Kraken Gets Targeted By The SEC

The United States Securities and Exchange Commission (SEC) has initiated legal action against the cryptocurrency exchange known as Kraken. The regulatory agency filed a lawsuit, asserting that Kraken engaged in running an online crypto trading platform without registering with the institution beforehand.

Getting sued

The lawsuit, directed at Payward Inc., which is commonly referred to as Kraken, and Payward Ventures Inc., contends that Kraken operated an online trading platform for buying and selling crypto assets since 2013. The SEC claims that many of these assets were investment contracts under U.S. securities laws.

According to court documents, Kraken functioned as a broker, dealer, exchange, and clearing house for these crypto asset securities without SEC registration. This led to the accumulation of substantial fees and trading revenue, bypassing compliance with U.S. securities laws designed to safeguard investors.

In response to the allegations levied against it, Kraken insists that these claims are baseless and that despite what has been said, the exchange has always prioritized the safety and satisfaction of the customers above all else. Kraken stated that it intends to vigorously defend its position as one of the top exchanges in the United States.

Bad to worse

The SEC further alleges that the aforementioned business practices, inadequate internal controls, and deficient record-keeping pose additional risks. For instance, Kraken reportedly held over $33 billion worth of customer crypto assets at times, commingling them with its own assets, creating a significant risk of loss for customers.

The agency asserts that Kraken also held over $5 billion in cash on behalf of customers, occasionally blending it with its own cash. Notably, Kraken allegedly covered operational expenses directly via bank accounts containing customer cash.

In addition, the legal case is grounded in the Securities Exchange Act of 1934, enacted to regulate national securities markets. The SEC contends that the activities of Kraken fall within the purview of U.S. securities laws due to its operation of a platform where crypto assets are offered and sold as investment contracts.