- The SEC claims Kraken broke numerous federal securities laws
- The exchange allegedly held more than $5 billion of customer cash
- Argument is false as a matter of fact; disastrous as a matter of policy
Crypto exchange Kraken joins the ranks of Binance and Coinbase as news emerged that it’s being sued by the US Securities and Exchange Commission (SEC) for allegedly commingling corporate and customer funds and operating as an unregistered dealer, broker, and clearing agency.
A “significant” risk
The SEC claims the San Francisco-based company broke numerous federal securities laws and created a “significant risk” by commingling up to $33 billion in its corporate assets with customer funds.
The regulator also alleges that the exchange held more than $5 billion worth of its customers’ cash at times and mixed up some of those with its own funds. At times, the exchange paid operational expenses directly from customers’ bank accounts.
The SEC made similar charges against Binance and Coinbase, with those two lawsuits ongoing. Previously, the watchdog settled similar allegations against Bittrex, which has now shut down.
Harping on unregistered securities
The SEC again listed a number of cryptos it considers unregistered securities, including MATIC, NEAR, and ALGO. The regulator claims Kraken was directly involved in promoting these tokens to investors. It has moved to ban Kraken from operating as a crypto exchange permanently and wants it to pay a fine and return illegal profits.
The exchange fights back
In a statement published on its blog, Kraken expressed disagreement with the SEC’s complaint, adding:
Today’s news has no impact on the products we offer and we will continue to provide services to our clients without interruption. The complaint against Kraken 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. Instead, the complaint makes a technical argument: that Kraken’s business requires special securities licenses to operate because the digital assets we support are really “investment contracts.” This is incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.
