The US Securities and Exchange Commission (SEC) has filed a lawsuit against Kraken, accusing the cryptocurrency trading platform of functioning as an unregistered securities exchange, broker, dealer, and clearing agency.
This action follows similar charges brought against Binance and Coinbase and comes just months after Kraken settled with the SEC for $30 million concerning its unregistered staking-as-a-service program.
The SEC claims that Kraken combines the roles of an exchange, broker, dealer, and clearing agency without the necessary registration with the Commission, as mandated by law. This failure to register purportedly deprives investors of essential protections, including SEC oversight, recordkeeping requirements, and safeguards against conflicts of interest.
Additionally, the SEC alleges that Kraken merges customer funds with its own, using customer accounts to directly cover operational expenses. The platform also reportedly mixes its customers’ cryptocurrency assets with its own, a practice that its auditor identified as posing a significant risk of loss to customers.
Gurbir Grewal, director of the SEC’s division of enforcement, stated: “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.”
In response, Kraken has asserted: “We disagree with the SEC’s complaint against Kraken, stand firm in our view that we do not list securities and plan to vigorously defend our position.”