The logo of cryptocurrency exchange Kraken is seen in this illustration from July 28, 2022. Portal/Dado Ruvic/Illustration/File Photo Acquire License Rights
Nov 20 (Portal) – Kraken, one of the world’s largest cryptocurrency exchanges, was sued on Monday by the U.S. Securities and Exchange Commission, accusing it of operating illegally as a securities exchange without first registering with the regulator.
The lawsuit in federal court in San Francisco is the latest step in SEC Chairman Gary Gensler’s push to bring cryptocurrencies under his agency’s purview by asserting that digital assets are investment contracts subject to federal securities laws.
Kraken seeks to defend itself by saying Congress should decide how to regulate cryptocurrency exchanges, calling the SEC’s view on digital assets “legally wrong, factually incorrect and disastrous for political reasons.”
The San Francisco-based exchange also said the lawsuit would have no impact on its more than 10 million customers.
In June, the SEC filed similar lawsuits against Binance, the world’s largest cryptocurrency exchange, and Coinbase, the largest in the United States. Both defend themselves against the claims of the regulatory authority.
The SEC said Payward Inc and Payward Ventures Inc, doing business as Kraken, made hundreds of millions of dollars arranging crypto purchases and sales since 2018 while “turning a blind eye to securities laws designed to protect investors.”
Kraken was also accused of poor internal controls and inadequate record keeping, reflected in part by the company commingling customer funds with its own funds and paying operating costs directly from customer accounts.
The failure “resulted in a business model rife with conflicts of interest that put investors’ funds at risk,” SEC enforcement chief Gurbir Grewal said in a statement. “Kraken’s decision to make ill-gotten gains instead of protecting investors is something we see far too often in this space.”
In its statement, Kraken said the SEC complaint acknowledged that any alleged “commingling” represented “no more than Kraken’s already earned spending fees.”
The SEC also accused Binance of commingling customer funds after a Portal report described such behavior. Binance has denied the accusation of mixing.
Monday’s lawsuit seeks a civil monetary penalty, confiscation of ill-gotten gains and a ban on operating as an exchange without registration.
Kraken was founded in 2011. It is backed by investors such as Blockchain Capital, Digital Currency Group, Hummingbird Ventures, SkyBridge and Tribe Capital.
The case is SEC v. Payward Inc et al, U.S. District Court, Northern District of California, No. 23-06003.
Reporting by Jonathan Stempel in New York; Additional reporting by Chris Prentice; Edited by David Gregorio, Stephen Coates and Chris Reese
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