- SEC filed a lawsuit accusing Kraken of operating an unregistered online trading platform and acting as an unregistered broker-dealer, exchange, and clearing agency
- SEC alleges Kraken’s practices created risks for investors and generated billions in revenue without adhering to securities laws
- The lawsuit follows previous SEC action against Kraken earlier this year for failing to register its crypto staking program
The US Securities and Exchange Commission (SEC) has filed a lawsuit against crypto exchange Kraken, accusing the company of securities law violations related to operating an unregistered online trading platform. This latest legal action from the SEC raises further questions about the regulatory compliance of major crypto exchanges.
Details of the Lawsuit
The SEC alleges that Kraken has acted as an unregistered broker-dealer, exchange, and clearing agency without registering with the Commission. By failing to register, Kraken has created risks for investors and generated billions in revenue without adhering to securities laws designed to protect investors, the lawsuit states.
The SEC also claims Kraken’s business practices, controls, and recordkeeping presented additional risks prohibited for registered securities intermediaries. For example, Kraken allegedly commingled customer assets worth over $33 billion with its own funds, creating a significant loss risk. The SEC seeks disgorgement of profits, permanent injunctions, and to stop Kraken from acting as an unregistered exchange.
Prior SEC Action Against Kraken
This new lawsuit follows previous SEC action against Kraken earlier this year. In February 2022, the SEC sued Kraken for failing to register its crypto staking-as-a-service program. Kraken settled that case for $30 million in disgorgement and penalties and agreed to cease the staking program.
The SEC said at the time Kraken’s staking program offered benefits from Kraken’s efforts on behalf of investors but exposed them to risks with little protection. This failure to register violated securities laws designed to disclose risks to investors, according to the SEC.
Conclusion
The latest SEC lawsuit alleges Kraken broke laws by acting as an unlicensed broker-dealer and exchange. This adds to the regulatory pressures facing crypto trading platforms. Kraken faces injunctions, disgorgement of profits, and the risk of ceasing US operations if it loses. The outcome of the case will be closely watched for implications across the crypto industry.
