SEC Sues Kraken In Latest Crackdown Against Crypto Exchanges

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The Secu­ri­ties and Exchange Com­mis­sion sued Krak­en, one of the largest cryp­tocur­ren­cy exchanges, on Mon­day, alleg­ing it had ille­gal­ly oper­at­ed with­out reg­is­ter­ing as a secu­ri­ties exchange—marking the lat­est step in the SEC’s push to reg­u­late cryptocurrency.

Key Facts

The SEC said in a press release Krak­en has ille­gal­ly made “hun­dreds of mil­lions of dol­lars” since 2018, and alleges it “has deprived investors of sig­nif­i­cant pro­tec­tions” by oper­at­ing while unregistered.

The law­suit argues many of the cryp­to assets that cus­tomers can trade on Krak­en legal­ly count as secu­ri­ties, mean­ing Krak­en is required to reg­is­ter with the SEC—but instead, Krak­en has simul­ta­ne­ous­ly oper­at­ed as a secu­ri­ties exchange, bro­ker, deal­er and clear­ing agency with­out reg­is­ter­ing with fed­er­al regulators.

Krak­en is also accused of hav­ing defi­cient inter­nal con­trols and poor record­keep­ing prac­tices that the SEC said “present a range of risks for its cus­tomers,” includ­ing “commingl(ing) its cus­tomers’ mon­ey with its own” and “pay­ing oper­a­tional expens­es direct­ly from accounts that hold cus­tomer cash.”

The law­suit, which was filed in fed­er­al dis­trict court in San Fran­cis­co, asks a judge to pro­hib­it Krak­en from act­ing as an unli­censed exchange, and seeks “dis­gorge­ment of ill-got­ten gains plus inter­est and penalties.”


Krak­en said in a state­ment it plans to “vig­or­ous­ly defend our posi­tion in court.” The com­pa­ny argued courts have reject­ed a pre­vi­ous attempt by the SEC to count 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,” the state­ment read.


This isn’t Kraken’s first issue with the SEC. In Feb­ru­ary, Krak­en agreed to stop offer­ing its stak­ing ser­vices and to pay a penal­ty of $30 mil­lion as a set­tle­ment with the SEC.

Key Background

The law­suit against Kraken—which has the for­mal name of Pay­ward Inc. and Pay­ward Ven­tures Inc—is the lat­est SEC law­suit tar­get­ing cryp­tocur­ren­cy exchanges as the agency works to reg­u­late the cryp­to sec­tor. SEC Chair­man Gary Gensler has indi­cat­ed for years that cryp­to would face tougher reg­u­la­tion, sug­gest­ing many cryp­tocur­ren­cies oth­er than bit­coin should be reg­u­lat­ed under fed­er­al secu­ri­ties laws and argu­ing the mar­ket was full of “fraud, scams and abuse” due to the lack of investor pro­tec­tions. The cryp­to indus­try has pushed back against these efforts, argu­ing cur­rent secu­ri­ties laws aren’t com­pat­i­ble with cryp­tocur­ren­cy and accus­ing the SEC of being over­ly aggres­sive. This year, the SEC has also sued Binance, Coin­base and Beaxy. It filed suit against Binance in June, alleg­ing that the com­pa­ny was oper­at­ing an ille­gal exchange in the U.S. and mis­used cus­tomer funds. In March, the SEC charged Beaxy, anoth­er cryp­tocur­ren­cy trad­ing plat­form, for fail­ing to reg­is­ter as an exchange and alleg­ing the founder mis­ap­pro­pri­at­ed cus­tomer money—the exchange shut down over the SEC charges. Mean­while, mega-exchange FTX col­lapsed last year and its founder Sam Bankman-Fried was found guilty of fraud ear­li­er this month.

Further Reading

MORE FROM FORBESKrak­en Ends U.S. Cryp­to Stak­ing To Set­tle SEC ChargesMORE FROM FORBESCoin­base Hit With SEC Suit That Iden­ti­fies $37 Bil­lion Of Cryp­to Tokens As Secu­ri­tiesMORE FROM FORBESCryp­to Crack­down: Here Are All The Major Cryp­to Firms Fac­ing Charges From Reg­u­la­tors This Year

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