SEC Charges Against Kraken
On November 20th, the U.S. Securities and Exchange Commission (SEC) brought charges against popular U.S.-based cryptocurrency exchange Kraken. The charges, dating back to 2011, involve allegations of operating as an unregistered broker, dealer, clearing agency, and securities exchange.
Why Kraken is Alleged as Illegal
The SEC’s complaint accuses Kraken of profiting from the illegal sale and purchase of securities backed by cryptocurrency since September 2018. The exchange is charged with taking on multiple roles without the necessary registrations, putting investors at risk by depriving them of SEC oversight, recordkeeping obligations, and protection against conflicts of interest. Furthermore, Kraken is alleged to have commingled client funds with its own, using customer accounts to cover operational expenses and combining its cryptocurrency holdings with its clients, posing a substantial risk of loss.
Lawsuit and Penalties
Filed in a federal district court in San Francisco, the lawsuit alleges that Kraken breached the Securities Exchange Act of 1934 registration requirements. The SEC is seeking disgorgement of profits, interest, penalties, and injunctive relief. Earlier in the year, Kraken had agreed to pay a $30 million civil penalty and cease offering securities through crypto asset staking services or programs.
Hot Take: The Implications of SEC Charges on Kraken
The charges against Kraken have significant implications for both the exchange and the wider cryptocurrency industry. Investors may be concerned about the lack of oversight and protections, potentially leading to decreased confidence in the market. Additionally, this case serves as a reminder to cryptocurrency exchanges and platforms about the importance of compliance with regulations to maintain the trust of investors and the authorities. The outcome of this case will likely have a lasting impact on how cryptocurrency exchanges operate and the measures they take to ensure legal and secure practices in the future.
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