SEC Has Charged Kraken for Operating as Unregistered Securities Platform

Key Points:

• The SEC has charged Kraken with operating as an unregistered securities exchange, broker, dealer, and clearing agency.
• The SEC alleges that Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities since at least September 2018.
• The SEC has charged Kraken is a significant development in the regulation of the cryptocurrency industry and could set a precedent for how other cryptocurrency exchanges are regulated.

The Securities and Exchange Commission, SEC has charged Kraken, with operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

SEC Charges Kraken with Operating as an Unregistered Securities Exchange, Broker, Dealer, and Clearing Agency

The SEC has charged Kraken for unlawfully facilitating the buying and selling of crypto asset securities since at least September 2018. Kraken has allegedly intertwined the traditional services of an exchange, broker, dealer, and clearing agency without registering any of these functions with the SEC, as required by law. Kraken’s failure to register these functions has deprived investors of significant protections, including SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest.

“We allege that Kraken made a conscious decision to reap substantial profits from investors without complying with securities laws,” stated Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “This decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.”

Kraken Accused of Operating Illegal Securities Exchange

The SEC’s complaint, filed in federal district court in San Francisco, alleges that Kraken violated the registration provisions of the Securities Exchange Act of 1934. The SEC is seeking injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties. This is the latest action by the SEC in its ongoing efforts to regulate the cryptocurrency industry.

The SEC has previously charged a number of companies with operating unregistered securities exchanges and offering unregistered securities. The SEC has also issued public statements warning investors about the risks of investing in cryptocurrencies. The SEC’s charges against Kraken are a significant development in the regulation of the cryptocurrency industry. If the SEC is successful in its case, it could set a precedent for how other cryptocurrency exchanges are regulated.

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