US SEC Files Fresh Charges Against Kraken Exchange, CEO Labels Regulator ‘Decel’

Jimmy Aki
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In its continued push to bring the crypto industry under its purview, the US Securities and Exchange Commission (SEC) has filed fresh charges against the Kraken exchange.

Operating an Unregistered Securities Exchange Outfit

In a November 20 court filing with the San Francisco Federal Court, the Gary Gensler-led SEC alleged that the Kraken exchange has been enabling the illegal buying and selling of cryptocurrencies since its inception.

The regulatory agency also revealed that the exchange operated as an unregistered securities exchange, broker, dealer, and clearing agency without receiving the required approval from the US government.

Supporting its argument regarding the classification of the US crypto exchange offering securities, the SEC listed 16 cryptocurrencies, which it claimed were securities and being offered on the Kraken platform.

Diving into more details on internal control incidents within the Bitcoin trading platform, the SEC stated that Kraken knowingly combined up to $33 billion in customers’ digital funds with its own.

To the SEC, this constituted a “significant risk of loss” to investors who trade blockchain-based assets on the platform.

Continuing in its filing, the regulator revealed that the platform directly pulled funds from accounts containing customers’ assets to pay for its operational expenses, according to a report filed by an independent auditing firm.

The SEC Enforcement Division Director Gurbir Grewal noted that the exchange made a business decision to profit from its customers rather than comply with laid-down securities laws.

Grewal further explained that this decision has crafted a business model that is rife with conflicts of interest and poses a significant threat to the safety of investors in the long run.

However, the Kraken exchange has repudiated these allegations, stating that it does not list securities and plans to make its stand in a court of law vigorously.

This is not the first time the exchange has been caught in the crosshairs of the top US agency.

Nine months prior, the SEC sued Kraken in relation to its offering of staking cryptocurrency services to US investors. According to them, the featured assets constitute securities, and the exchange was not approved to offer them.

Kraken’s staking service enabled investors to lock up a certain amount of cryptocurrencies with the platform for a particular period to earn a variable yield from them.

However, the SEC and Kraken settled out of court with the centralized crypto outfit paying $30 million, and it discontinued the staking offering in the US.

In a follow-up blog post on the SEC’s latest complaints, the exchange said the regulator’s commingling accusations were no more than the spending fees it had earned. It also revealed that the agency didn’t charge it for fraudulent activities related to customers’ funds.

Powell Blows Hot

While the Kraken platform has expressed its stance on the recent charges filed against it, CEO and co-founder Jesse Powell has also shared his perspective on the entire matter.

In a post on X (formerly Twitter), Powell labeled the government agency as the “USA’s top decel.”

Continuing his rebuttal, the Kraken boss said the SEC is trying its hands on California after facing legal defeats in New York.

Furthermore, he alluded that the exchange had previously satisfied the top regulatory agency following its February settlement for its crypto-staking products.

Powell added that the SEC’s continued aggression is a clear enough signal to crypto companies to leave the US warzone if they want to avoid expensive legal battles.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.