Kraken faces charges by the SEC for unregistered operations

The US Securities & Exchange Commission, also known as the SEC, has charged Kraken for offering services that were not registered under law. Kraken Inc. and Kraken Ventures Inc. allegedly have been found engaging in functions of securities exchange, dealer, broker, and clearing agency. This violates the Securities Exchange Act of 1934, which requires adhering to the consequences.

What the Commission seeks is pretty basic – disgorgement of ill-gotten gains along with interests, conduct-based injunctions, injunctive reliefs, and penalties. Kraken has reportedly honored the payment of civil penalties worth $30 million as of February 2023. The complaint has been filed in the district court of San Francisco per the press release published by the SEC.

It further mentions that Kraken has accumulated millions of dollars since September 2018 by unlawfully facilitating the trading of crypto asset securities. The platform was originally required to register its services and products with the SEC as per law; however, it never did so.

Failing to register with the Commission, according to the press release, has deprived a large number of investors of protection, including, but not limited to, conflict of interests, recordkeeping, and periodic inspections by the SEC.

Kraken has been allegedly found to be commingling the money of customers with its own, using it to settle operational expenses. Similarly, Kraken is facing allegations that it has commingled its customers’ assets with its own to create a significant risk of loss to its customers.

Holding Kraken accountable serves two purposes here – it seeks to revise how the platform operates and send other platforms a stern warning about complying with the law to avoid such matters. Gurbir S. Grewal, the Director of the Division of Enforcement at the SEC, has said that they see a choice of unlawful profits far too often in the industry. Grewal has added that Kraken’s decision to operate unlawfully has led to a business model that is now standing in a conflict of interest with the funds of investors at risk.

Kraken operates as an exchange by providing a marketplace where orders for securities come together. It then acts as a broker by engaging in the business which affects securities transactions for the accounts of customers. The buying and selling of securities without any applicable exceptions makes the platform a potential dealer. Finally, working as an intermediary marks its status as a clearing agency when it helps settle transactions in crypto asset securities.

The SEC has previously charged the Co-CEOs of Bitwise Industries for allegedly raising $70 million from investors through falsification of documents. The scheme was exposed in May 2023, leading to the loss of jobs for all Bitwise personnel. Jake Soberal and Irma Olguin Jr are now contesting the allegations of misleading investors.

An official statement by Kraken is awaited since the SEC has published a press release. The overall goal is to bring platforms like Kraken under regulation and help investors secure their funds.