The U.S. Securities and Exchange Commission (SEC) has recently initiated a thorough legal action against Kraken, a cryptocurrency exchange platform.
A detailed 90-page lawsuit has been submitted to the United States District Court for the Northern District of California, signifying a crucial step in the SEC’s continuous endeavor to impose stricter regulation on the crypto industry.
The Crux of SEC’s Accusations
Central to the lawsuit is the SEC’s assertion that Kraken has been functioning as a broker, dealer, exchange, and clearinghouse for cryptocurrency assets without the necessary registration, thereby breaching U.S. securities regulations.
The regulatory body alleges that from at least September 2018, Kraken has illicitly enabled the purchase and sale of crypto asset securities, accumulating hundreds of millions of dollars in the process.
Operational Methods Under Inspection
The SEC’s lawsuit draws attention to significant issues concerning Kraken’s operational methods. It suggests that the exchange’s internal controls are questionable and that it has combined customer assets, worth over $33 billion, with its own, thus exposing customers to considerable risk of loss.
Specific Tokens in Focus
The SEC’s scrutiny also extends to specific coins traded on Kraken, such as ADA, AXS, and ALGO. These tokens have previously encountered problems with SEC regulations on other platforms like Bittrex, Binance, and Coinbase.
The regulator is apprehensive that these tokens, termed as Kraken-Traded Securities, could be seen as investment contracts, hence further confusing the distinctions between cryptocurrencies and securities.
Kraken’s Rebuttals and Market Reaction
In response, Kraken has declared its plan to robustly defend its stance, asserting that it’s Congress’s role, not the SEC’s, to determine how cryptocurrency exchanges should be regulated.
The exchange insists that the SEC’s approach to digital assets is fundamentally flawed, both legally and factually.
Despite the seriousness of the lawsuit, the markets have demonstrated relative stability, signaling that such regulatory actions are increasingly expected by investors.
Wider Consequences and Kraken’s Future Direction
This lawsuit underlines the SEC’s determination in ensuring crypto exchanges comply with federal securities laws, a position further strengthened by the recent bankruptcy of Sam Bankman-Fried’s FTX exchange.
The SEC’s submission not only seeks a permanent ban on Kraken’s operation as an unregistered exchange but also aims to impose penalties and compel the return of profits deemed unlawfully obtained.
Kraken, which has previously pledged to cease marketing or selling securities through crypto asset staking services and agreed to pay a $30 million civil penalty, remains steadfast in its commitment to continue providing services to its clients without interruption.
