Operating As an Unregistered Securities Exchange
The US Securities and Exchange Commission (SEC) accused Kraken of operating its crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency. This allegedly resulted in the exchange unlawfully making hundreds of millions of dollars over the last five years and possibly before that. Despite ongoing disputes regarding the classification of crypto buying and selling as an act of crypto asset ‘securities’, the SEC continues to enforce the law based on this ambiguity.
In the complaint, the SEC alleges that Kraken intertwines the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law.
The SEC stated that by operating as an unregistered entity, Kraken deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest.
‘Commingling Customer Money’
The US SEC also argued that Kraken had commingled customers’ money and crypto assets with its own operational funds. The complaint stated that Kraken allegedly paid operational expenses directly from accounts that hold customer cash, a practice identified by the exchange’s auditor as “a significant risk of loss” to its customers.
In response, Kraken stated disagreement with the charges and plans to fight in court, potentially marking the beginning of a long crypto lawsuit against the SEC.
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