Kraken Rollouts New Division for Institutional Investors

SEC Files New Charges Against Kraken for Commingling Customers Funds 

In a recent report, the US Securities and Exchange Commission (SEC) filed a new lawsuit against Kraken for violating the securities laws. The charges came months after the SEC and Kraken had settled similar charges.

In a November 20 press release, the SEC accused Kraken’s parent company, Payward Inc., of breaching the securities laws. The market regulators accused Kraken of operating as an unregistered securities exchange, dealership, and brokerage firm.

SEC Files Fresh Charges Against Kraken

The SEC filing mirrors charges against Kraken’s top rival, Coinbase. In June, the SEC accused Coinbase of offering customers unregistered securities through its staking services.

According to the press release, the SEC claimed Kraken had generated millions of dollars since 2018 by engaging in unlawful trading activities. The market regulators noted that Kraken intertwined its product offering by incorporating the conventional service of an exchange, dealership, clearing agency, and brokerage without meeting the regulatory requirements defined by the SEC.

The market regulators regretted that the unsubmissiveness of Kraken to law had prevented the investors from enjoying some of the benefits provided by the SEC. The report argued that if Kraken could fully comply with the SEC by acquiring the relevant registration, the investors could receive regular inspections of the financial products.

Also, the investor could be protected from conflicts emanating from competing stakeholders’ interests. Besides Kraken’s failure to register its product offering with the SEC, the regulators questioned the crypto exchange business practices.

Kraken Violates Securities Law

In the press release, the SEC accused Kraken of failing to establish well-functioning internal control and record keeping. The regulators noted the deficiencies in Kraken business practices exposed the customers to inherent risks.

The regulators blamed Kraken for failing to maintain required business practices that resulted in the commingling of customers’ funds to company assets. The SEC noted that Kraken used to settle some of its operation costs using customers’ funds.

The regulators condemned Kraken for commingling customers’ money with company funds, resulting in a significant risk of customer losses.

Based on the SEC finding, the regulators noted Kraken focused on profit-generating schemes rather than meeting the securities requirements. Apart from facilitating the buying and selling of digital assets, the regulators indicated that Kraken generated profits of hundreds of millions from investors.

SEC Take Legal Action Against Non-Compliant Firms

A statement from Gurbir S.Grewal, the director of the division of enforcement at SEC, revealed that the business model adopted by Kraken conflicted with the customers’ interests.

The official noted that Kraken preferred maximizing its profit to consumer protection. The desire to expand Kraken’s revenue stream has exposed the investors’ fund to potential risk.

This has forced the SEC to take legal action against Kraken due to its misconduct. Grewal noted that Kraken has been urging other crypto firms to comply with the existing regulations.

The press release revealed that Grewal led the SEC to conduct extensive research on the Kraken matter. Following the Kraken unlawful activities, the SEC filed a fresh lawsuit at a federal court in San Francisco against the controversial crypto exchange.

In the court filing, the SEC claimed that Kraken violated the Securities Exchange Act of 1934, which defines the secondary trading of securities. The SEC regulatory action against Kraken aims to restrict the crypto exchange from operating as unregistered.

In the latter, the regulators anticipate that the court will resolve the issue and punish Kraken for engaging in unlawful activities. Commenting on the SEC charges, a spokesperson from Kraken opposed that the crypto exchange does not offer securities.

The spokesperson plans to refute the SEC filing vehemently. He blamed the SEC for forcing crypto exchanges to register with the commission while the existing laws were still unclear.

The filing came nine months after Kraken was instructed by the court to cease the buying and selling of securities through its staking platform. The Kraken was forced to settle a court fine of $30 million.

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