SEC charges Kraken for operating as unregistered securities exchange

The Securities and Exchange Commission has really got the bit between its teeth charging Kraken, with operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

SEC charges Kraken 

Just days after securing one of the biggest corporate fines in the US history across multiple government agencies from Binance, it appears the US enforcement agencies will stop at nothing to take back control of the crypto market in the states.

According to the SEC’s complaint, since at least September 2018, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities.

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.

Kraken’s alleged failure to register these functions has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.

Through its platform’s services, Kraken allegedly:

• Provides a marketplace that brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact, and thus operates as an exchange;
• Engages in the business of effecting securities transactions for the accounts of Kraken customers, and thus operates as a broker;
• Engages in the business of buying and selling securities for its own account without an applicable exception, and thus operates as a dealer; and
• Serves as an intermediary in settling transactions in crypto asset securities by Kraken customers, and acts as a securities depository, and thus operates as a clearing agency.

The SEC’s complaint also alleges that Kraken’s business practices, deficient internal controls, and poor recordkeeping practices present a range of risks for its customers.

As alleged in the complaint, Kraken co-mingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash.

Kraken also allegedly co-mingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.

In February of this year, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and pay a civil penalty of $30 million.