November 20, Reuters The U.S. Securities and Exchange Commission filed a lawsuit against Kraken, one of the biggest cryptocurrency exchanges globally, on Monday, alleging that the company had been operating unlawfully as a securities exchange without first registering with the agency.
SEC Chair Gary Gensler is attempting to include cryptocurrency under his agency’s jurisdiction with this lawsuit in federal court in San Francisco. He is arguing that digital assets are investment contracts that fall under federal securities laws.
With Congress having the final say over cryptocurrency exchange regulations, Kraken plans to fight back, labeling the SEC’s position on digital assets as “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.”
The exchange, situated in San Francisco, added that the lawsuit will not have an impact on its over 10 million customers.
Similar lawsuits were filed by the SEC in June against Coinbase, the largest cryptocurrency exchange in the US, and Binance, the largest cryptocurrency exchange worldwide. Both are disputing the assertions made by the regulator.
According to the SEC, since 2018, Payward Inc. and Payward Ventures Inc., the companies that run Kraken, have made hundreds of millions of dollars arranging the purchase and sale of cryptocurrency while “blinding eye” securities laws meant to safeguard investors.
SEC enforcement chief Gurbir Grewal stated in a statement that the failure to register “resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.” “Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space.”
According to Kraken’s statement, the SEC complaint acknowledged that any purported “commingling” was “no more than Kraken spending fees it has already earned.”
Additionally, the SEC charged Binance with commingling client funds in response to a Reuters article detailing the same behavior. The charge of commingling has been refuted by Binance.
The lawsuit filed on Monday calls for the disgorgement of unjustly acquired wealth, a civil fine, and an end to operating as an exchange without registering.
In 2011, Kraken was established. Blockchain Capital, Digital Currency Group, Hummingbird Ventures, SkyBridge, and Tribe Capital are among the investors who support it.
The case is Northern District of California, U.S. District Court, SEC v. Payward Inc. et al., No. 23-06003.
Editing by David Gregorio, Stephen Coates; additional reporting by Chris Prentice; reporting by Jonathan Stempel in New York . Additionally, Chris ReeseKraken was charged with having insufficient internal controls and poor record keeping, which was partly evidenced by the company’s payment of operating expenses out of customer accounts and mixing customer funds with its own.