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SEC Charges Kraken With Running Unregistered Securities Exchange

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) has charged Kraken with running an unregistered cryptocurrency exchange.

The SEC’s complaint, filed Monday (Nov. 20), accuses Kraken of making hundreds of millions of dollars since 2018 by illegally facilitating crypto asset securities sales. It comes at the end of a year that has seen the regulator take a number of similar actions against crypto firms.

“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,” the agency said in a news release.

“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.”

Kraken responded with a blog entry saying it disagrees with the SEC’s position and intends to defend its position in court.

“The complaint against Kraken alleges no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty,” the blog post reads.

“It includes big dollar amounts but does not allege a single one of those dollars is missing or misused — no ponzi scheme, no failure to maintain adequate reserves, and no failure to preserve the identity of client funds 1:1. Indeed, none of these things would be true.”

Rather, the post continues, the SEC makes a technical argument — that Kraken requires special securities licenses because the digital assets it supports are “investment contracts — something the company contends is incorrect under the law and “disastrous as a matter of policy.”

The SEC filing follows the agency’s back-to-back legal actions in June against Binance and Coinbase, the largest crypto companies in the world and the U.S., respectively. Both companies have said they are fighting the agency’s charges.

As PYMNTS wrote last month, the commission under Chairman Gary Gensler “has taken a decidedly anti-crypto tack,” with the chair arguing in a court filing that cryptocurrencies lack any “innate or inherent value of its own.”

The SEC has lost a few court battles against another digital asset company, Ripple, leading that firm’s CEO to suggest recently that the agency might be softening its stance.

However, a report last week by JPMorgan Chase said there is still no indication that regulatory efforts are going to relax, seeing how unregulated the sector is.

“U.S. crypto industry regulations are still pending and we do not believe U.S. lawmakers would shift their stance … especially with the memories from the FTX fraud still fresh,” the report said.