SEC charges Kraken for unregistered operations and fund mixing, raising regulatory scrutiny in the crypto sphere.
Kraken, a cryptocurrency exchange, was charged by the Securities and Exchange Commission (SEC) on Monday for operating an unregistered securities exchange, broker, dealer, and clearing agency without permission. The exchange has also been held accountable for the mixing of its own funds and cryptocurrency holdings with those of its clients.
The SEC accuses Kraken
The regulator claims that without acquiring any required registration, San Francisco-based Kraken has combined the traditional functions of an exchange, broker, dealer, and clearing agency. The accusations made against Coinbase earlier in the year were comparable to these ones.
The regulatory body further stated that Kraken’s clients have been denied access to “significant protections,” such as recordkeeping obligations, regulatory inspections, and precautions against conflicts of interest. The lawsuit also accused the cryptocurrency exchange of having inadequate recordkeeping procedures and weak internal controls.
The SEC’s Division of Enforcement Director, Gurbir Grewal, stated, “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 choice led to a business model full of conflicts of interest that endangered the money of investors.”
The Securities Exchange Act of 1934’s registration requirements were broken, according to the SEC, and as a result, the company is now requesting “injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties.”
The accusations made against Coinbase and Binance are very similar to those made against Kraken. Earlier this year, the SEC filed a lawsuit against the two cryptocurrency exchanges. It’s important to note, though, that Coinbase was not charged with combining consumer funds.
Kraken’s Reaction
Kraken quickly addressed the accusations made against it in a blog post that was posted that same day, stating that it plans “to vigorously defend [its] position in court.”
“No fraud, no market manipulation, no customer losses from hacking or compromised security, and no breaches of fiduciary duty are alleged in the complaint against Kraken. It mentions large sums of money, but it makes no claims that any of those funds are lost or misappropriated; there is no Ponzi scheme, no insufficient reserve keeping, and no failure to protect customer funds 1:1, the exchange pointed out. “None of these things would be true, in fact.”
It’s interesting to note that Kraken did not completely deny the allegations of “commingling of funds.” Instead, it said as follows: “The SEC cannot and does not claim that any client monies are lost or that any losses have happened. It also makes no claims regarding potential losses. The complaint acknowledges that Kraken is only spending money it has already acquired through this alleged “commingling.”
Kraken reached a settlement with the SEC earlier this year, agreeing to stop providing its cryptocurrency-staking business in exchange for a $30 million fine.
