Kraken refuses to restrict services after SEC’s lawsuit over offering unregistered shares

What’s new? The US Securities and Exchange Commission (SEC) has accused local crypto exchange Kraken of operating without registration as a broker, dealer, securities exchange, and clearing agency, as well as mixing customers’ funds with its own. In addition, the regulator accused the platform of unregistered offering of securities in the form of tokens. The SEC had earlier filed similar charges against Binance and Coinbase exchanges.

Press release

What else is known? The lawsuit, citing Kraken’s independent auditor, claims that the exchange’s actions to combine $33 billion in client crypto assets with its own funds poses a significant risk.

The regulator demands a fine and the return of illegally obtained profits, specifying that since at least September 2018, Kraken has made hundreds of millions of dollars by illegally facilitating the purchase and sale of crypto asset securities.

The SEC classified ADA, AXS, ALGO, ATOM, CHZ, COTI, DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SOL coins as unregistered securities listed on Kraken. Most of these assets appear in lawsuits against Binance and Coinbase as well.

Officials explained that Kraken combined the traditional services of an exchange, broker, dealer, and clearing agency without registering any of these functions with the SEC, as required by law. By doing so, the exchange deprived investors of protections that should be provided through the inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest.

The Kraken team has denied the charges and said it is ready to defend its interests in court. It also assured that the exchange will continue to operate in full and will not eliminate any products or services.

The company emphasizes that the lawsuit is not about fraud, market manipulation, customer losses due to hacking, or breach of fiduciary duty. Although it involves a large sum, the SEC also does not allege that “a single one of those dollars is missing or misused.”

“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,” Kraken’s representatives concluded.

In February, Kraken was forced to pay a $30 million fine and stop providing staking services in the US due to SEC’s claims.

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In September, the media reported that Kraken would start offering trading in stocks and exchange-traded fund units in the US and the UK through its new Kraken Securities division. In October, Kraken bought Dutch crypto broker BCM to expand its business in Europe. In November, it became known that the exchange is in talks with the developers of the Polygon blockchain to launch its own second-layer network based on it.