SEC sued Kraken for operating an unregistered securities platform

On November 20, 2023, the U.S. Securities and Exchange Commission (SEC) initiated a significant legal action against the cryptocurrency exchange Kraken. The SEC charged Payward Inc. and Payward Ventures Inc., collectively known as Kraken, with operating their crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.
 

According to the SEC’s complaint, Kraken had been unlawfully facilitating the buying and selling of crypto asset securities since at least September 2018, earning hundreds of millions of dollars in the process. The SEC alleged that Kraken intertwined 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 SEC’s complaint highlighted that Kraken’s failure to register these functions deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest. The complaint also pointed out Kraken’s business practices, deficient internal controls, and poor recordkeeping practices, which presented a range of risks for its customers.
 

The SEC accused Kraken of commingling its customers’ money and crypto assets with its own, creating a significant risk of loss to its customers. This was identified as a concern by Kraken’s own auditor. The SEC sought injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties.
 

Kraken, in response to the SEC’s complaint, disagreed with the allegations, standing firm in their view that they do not list securities and planned to vigorously defend their position in court.