Kraken Crypto Exchange Faces Lawsuit by SEC for Unregistered Operations
The US Securities and Exchange Commission (SEC) has resumed its crackdown on the crypto industry and has recently targeted the Kraken crypto exchange for failing to register. On November 20, the SEC announced that it had filed a lawsuit against Kraken, accusing the exchange of operating without proper registration as a securities exchange, broker, dealer, and clearing agency. This move is part of SEC Chair Gary Gensler’s efforts to regulate digital asset exchanges under federal securities laws.
According to the SEC’s complaint, Kraken has allegedly facilitated the buying and selling of crypto asset securities illegally since September 2018, generating substantial profits. The SEC argues that Kraken’s failure to register its operations denies investors important protections, such as SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest.
In response to the lawsuit, Kraken plans to vigorously defend its position in court. The company asserts that previous attempts by the SEC to classify crypto assets as securities have been rejected by courts. Kraken emphasizes that the complaint does not allege any fraudulent activities, market manipulation, customer losses due to hacking, compromised security, or breaches of fiduciary duty.
This is not the first time the SEC has gone after Kraken. In February, the exchange agreed to halt its staking services and paid a $30 million penalty to settle a case with the regulator. The SEC further claims that Kraken’s business practices, inadequate internal controls, and poor recordkeeping pose risks to its customers.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, criticizes Kraken for prioritizing unlawful profits over investor protection. He states that holding Kraken accountable for its misconduct sends a message to others to comply with regulations.
In addition to Kraken, the SEC has also sued other major players in the crypto industry, such as Coinbase and Binance, over similar allegations. The regulatory body is still involved in a legal battle with Ripple. However, in July, the judge presiding over the Ripple case ruled that secondary sales of XRP were not investment contracts or securities.
The SEC’s ongoing efforts to regulate the crypto industry highlight the increasing scrutiny faced by digital asset exchanges. As this legal battle unfolds, the outcome will have significant implications for the industry as a whole. Crypto exchanges must be prepared to adapt to a changing regulatory landscape to ensure compliance and protect investors.
