SEC Sues Kraken for Unregistered Operations and Commingling of Funds

4:08 pm
November 24, 2023

The US Securities and Exchange Commission (SEC) has filed a lawsuit against cryptocurrency exchange Kraken, alleging that the platform conducted unregistered operations and commingled customer funds with corporate assets.

The SEC claims that Kraken operated as an unregistered broker, clearing agency, and dealer, trading tokens considered securities without complying with federal securities laws. The lawsuit specifically mentions tokens like Algorand (ALGO), Polygon (MATIC), and NEAR Protocol (NEAR) as unregistered securities traded by Kraken.

Furthermore, the SEC notes that Kraken commingled up to $33 billion in customer cryptocurrency with its corporate assets, posing a “significant risk.” The regulator also alleges that Kraken mixed over $5 billion of its customers’ cash with its own, even using customer funds for operational expenses directly.

Kraken Responds

In response to the SEC’s allegations, Kraken issued a statement disagreeing with the complaint, emphasizing that it does not list securities, and expressing disappointment in the SEC’s regulatory approach. Additionally, Kraken advocates for regulatory clarity tailored to the unique risks and benefits presented by cryptocurrencies, suggesting that Congressional action is necessary to address the current lack of regulatory clarity in the U.S.

As the legal proceedings unfold, Kraken, Coinbase, and Binance are facing increased scrutiny from the SEC as they navigate the regulatory landscape of the cryptocurrency industry.

Regulatory Clarity in the Cryptocurrency Industry

The current lawsuit against Kraken is part of the SEC’s increased focus on regulating the cryptocurrency industry. With the regulatory landscape evolving, it is crucial for cryptocurrency exchanges and platforms to prioritize compliance with securities laws and ensure the transparent separation of customer funds from corporate assets.

FAQs

1. What are the specific allegations made by the SEC against Kraken?

The SEC has accused Kraken of engaging in unregistered activities as a broker, clearing agency, and dealer. Kraken is also alleged to have traded tokens considered securities without complying with federal securities laws and commingled customer funds with its own corporate assets.

2. How much cryptocurrency and cash did Kraken commingle, according to the SEC?

The SEC alleges that Kraken commingled up to $33 billion in customer cryptocurrency with its corporate assets and mixed over $5 billion of its customers’ cash with its own, even using customer funds for operational expenses directly.

3. How did Kraken respond to the SEC’s allegations?

Kraken issued a statement disagreeing with the complaint, emphasizing that it does not list securities, and expressing disappointment in the SEC’s regulatory approach. Additionally, Kraken advocated for regulatory clarity tailored to the unique risks and benefits presented by cryptocurrencies.


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