In a fresh blow to the cryptocurrency sector, the US Securities and Exchange Commission (SEC) has accused leading crypto exchange Kraken of violating securities laws less than a year after the company settled for $30 million over other alleged misconduct. The SEC contends that Kraken engaged in commingling customer assets with its own and, at times, used customer cash to cover expenses. Moreover, the regulator claims that Kraken operated as an exchange, broker, dealer, and clearing agency without the necessary registrations, echoing similar allegations against Coinbase and Binance.
The SEC’s lawsuit asserts that Kraken, in the combined years of 2020 and 2021, generated more than $43 billion in revenue from trading-based transactions. The regulator alleges that Kraken prioritised financial gains over compliance with securities laws, creating a business model fraught with conflicts of interest and jeopardising investors’ funds. Kraken, in response, vehemently disagrees with the SEC’s claims, stating its intent to vigorously defend its position.
Kraken, via a post on X (formerly Twitter), expressed its disagreement with the SEC’s allegations and emphasized that the developments would not disrupt its product offerings. The exchange accused the SEC of challenging crypto exchanges without clear legal support and a pathway to registration. Notably, the lawsuit is distinct from Kraken’s February settlement with the SEC, where it paid $30 million to resolve allegations related to its staking service being deemed an illegal sale of securities.
SEC Chair Gary Gensler’s crackdown on the crypto industry has been relentless, with the commission asserting regulatory authority over crypto exchanges and numerous digital tokens. The legal action against Kraken aligns with Gensler’s assertion that the crypto space is rife with fraud and misconduct. The SEC’s stance on tokens as securities mirrors similar lawsuits against Coinbase and Binance, signalling a broader regulatory push.
Kraken co-founder Jesse Powell expressed himself unequivocally in response to the SEC’s accusations. Powell labelled the SEC as the “USA’s top decel,” using tech jargon to portray the regulator as an impediment to progress. Powell questioned the SEC’s renewed pursuit of legal action after the $30 million settlement in February, suggesting dissatisfaction on the part of the regulatory body.
“USA’s top decel is back with another assault on America. The masochists haven’t been happy with the beatings they’ve been taking in NY and are shopping for a different flavor of RegDom in CA. I thought we settled all their concerns for $30m in Feb. Now they’re back for seconds? https://t.co/SkfPJyneUz
— Jesse Powell (@jespow) 21 November, 2023
Powell’s scathing remarks extended to a warning for other crypto companies. In a follow-up post, he advised crypto firms to exit the “US warzone” to avoid expensive legal battles. Powell asserted that the $30 million settlement bought only temporary respite, predicting that the SEC would return for more.
The SEC’s lawsuit against Kraken has broader implications for the legal status of cryptocurrencies and their trading platforms. As the legal battle unfolds, it could set a precedent for regulatory scrutiny in the crypto space. Meanwhile, crypto markets in the Asia-Pacific region remained steady after the SEC’s announcement, with larger tokens like Bitcoin, Ether, and BNB experiencing a rally following news of potential resolution in the US Justice Department’s probe into Binance.
In the evolving landscape of crypto regulations, Kraken finds itself at the forefront of a legal storm, challenging not only its business practices but also the broader regulatory framework governing digital assets. The outcome of this legal clash will likely reverberate across the crypto industry, shaping the future of regulatory compliance and investor protection.
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