The US Securities and Exchange Commission has continued with its crackdown on the crypto industry following a quiet couple of months. Its latest target is the Kraken crypto exchange, which has been sued for failing to register.
On November 20, the SEC announced in a press release that it had charged Kraken for operating as an unregistered securities exchange, broker, dealer, and clearing agency. It is the agency’s latest enforcement action against digital asset exchanges.
Kraken Targeted by SEC
The latest lawsuit in San Francisco federal court is another move by SEC Chair Gary Gensler to control the asset class that he deems come under federal securities laws.
The federal regulator charged Payward Inc. and Payward Ventures Inc., together operating as Kraken.
According to the SEC’s complaint, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of “crypto asset securities,” since September 2018.
It claimed, as with other crypto exchanges, that they failed to register as securities exchanges. However, crypto assets have yet to be officially and legally classified as securities by Congress. It continues to procrastinate over regulations, stating:
“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.”
Read more: Kraken Review 2023: A Review of Its Security, Fees, and Features
In response, Kraken said in a statement that it plans to “vigorously defend our position in court.”
Moreover, the company argued that courts have rejected a previous attempt by the SEC to classify crypto assets as securities.
“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.”
It isn’t the first time the SEC has gone after Kraken. In February, the exchange agreed to halt its staking services and pay a penalty of $30 million as a settlement with the regulator.
Co-founder of Kraken, Jesse Powell, also commented on the charges in a post on X, Stating:
“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?”
SEC Warpath Continues
The regulator also alleges that Kraken’s
“Business practices, deficient internal controls, and poor recordkeeping practices present a range of risks for its customers.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said:
“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”
The SEC has also sued Coinbase and Binance this year and is still battling with Ripple over similar allegations. However, in July, the judge presiding over the Ripple case ruled that secondary sales of XRP were not investment contracts or securities.
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