The United States Securities and Exchange Commission (SEC) has continued to target crypto platforms over regulatory concerns. This time around, the authority has alleged that Kraken is an unregistered exchange, broker, dealer, and clearing agency that mixes its funds with customers’ assets.
Quick Take:
- The SEC filed a lawsuit against Kraken, accusing it of illegally listing securities.
- The lawsuit alleges Kraken ‘commingled’ its own assets with the customer’s funds.
- Kraken refutes all accusations laid on itself and lashes out at the SEC and its enforced regulation.
The US SEC has sued one of the largest global cryptocurrency exchanges, Kraken. On Monday, the regulatory authority sued the exchange and claimed that it is illegally operating as a securities exchange without registering with the SEC.
Furthermore, the lawsuit is filed in the San Fransisco Federal Court, alleging that Kraken has been illegally buying and selling cryptocurrencies since its launch in 2018.
The Director of the SEC’s Division of Enforcement, Gurbir S. Grewal said,
“We allege that 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.”
The SEC made further claims about Kraken’s operational model in its filing. It said that the exchange mixes up to $33 billion worth of user funds with its own. Therefore, Kraken puts the assets of customers at risk of loss.
Moreover, the lawsuit alleges that Kraken used accounts containing customer funds to pay for its day-to-day operations. It referred to the independent auditor of the exchange in making this claim.
Grewal further stated,
“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”
The Latest Regulatory Push From Gary Gensler-Led SEC
Gary Gensler and the SEC are continuing to enforce more regulatory compliance within the crypto space. The authority has already been pushing to prove that cryptocurrencies are investment contracts that fall under federal securities law.
The SEC has got into a legal battle with a number of crypto platforms and firms. It had a setback when the court ruled in favor of Ripple in one of the most prolific Ripple-SEC cases. However, it has not stopped the authority from continuing its crackdown on crypto platforms.
Kraken Aims to Defend Itself in Court
On the other hand, Kraken was quick to follow up on the development with a blog post on Monday. The exchange has pushed back against accusations laid against itself, claiming that it has never listed unregistered securities on its platform.
Kraken criticized the SEC over its regulation by enforcement strategies and argued that it is a threat to consumers. The exchange added that the alleged commingling of funds is nothing more than the exchange spending fees that it has already earned.
The SEC has not made claims of fraud, market manipulation, compromised security, missing or misusing of funds, and running a ponzi scheme. However, the complaint is based on technical grounds, urging the exchange to get a special securities license. Kraken believes that this move from the SEC is incorrect within the law.
The regulatory authority also listed 16 cryptocurrencies considered securities, including ADA, MATIC, SOL, ATOM, and FIL. Moreover, the SEC claims that Kraken violates the registration provisions of the Securities Exchange Act of 1934. It also urges the exchange to pay penalties and return ill-gotten gains.
