US SEC continues its crypto exchange crackdown with a new Kraken lawsuit

The US securities regulator, the Securities and Exchange Commission (SEC) continued its crypto exchange crackdown with a lawsuit against another major platform, Kraken. The regulator accused the platform of operating as an unregistered securities exchange, dealer, broker, and clearing agency.

Kraken has violated multiple securities laws, says the SEC

The move against Kraken comes almost half a year after the SEC made similar accusations against Binance and Coinbase, the two largest platforms in the crypto industry. Furthermore, it comes only a few months after the last legal issue that saw the SEC confront Kraken, which happened when the regulator pursued the exchange for its failure to register a staking-as-a-service program.

That matter was resolved with a settlement that obligated Kraken to pay a $30 million fine. Now, however, the SEC claims that Kraken intertwined traditional services of an exchange, dealer, broker, and a clearing agency. However, it did so without registering for any of those functions, which it was obligated to do by the standing laws.

The regulator further says that Kraken’s failure to do so ended up depriving investors of significant protections. Some of them include inspections by the SEC, safeguards against conflicts of interest, requirements revolving around recordkeeping practices, and more.

More than that, the SEC added that Kraken mixes customer money with its own funds, meaning that it also uses consumer funds to pay for things like operational costs, as the funds for this comes from accounts that also hold consumer cash.

Kraken has also mixed its customers’ cryptocurrencies with its own, which the regulator sees as exposure to a significant risk of losses. In other words, the SEC has made numerous major accusations against the exchange, which will likely have a major impact on the size of the penalty that the exchange will have to pay.

Kraken disagrees with the accusations, plans to defend its position

The SEC’s division of enforcement director, Gurbir Grewal, commented on the new development, stating that the regulator alleges that Kraken made a business decision to reap hundreds of millions of dollars from investors instead of becoming compliant with the US securities law. The decision resulted in a business model that is rife with conflicts of interest, which placed investors’ funds at risk.

Kraken responded to the accusations only by sharing the exchange’s official stance, which is that it disagrees with the Commission’s complaint against the platform. Instead, Kraken has decided to “stand firm” in its view that it does not list securities, and it plans to vigorously defend its position.

The SEC cannot continue ruling by enforcement. My statement on the Kraken lawsuit below: pic.twitter.com/J3qhzU624N

— Senator Cynthia Lummis (@SenLummis) November 21, 2023

With the SEC losing court cases against several crypto companies this year, the exchange likely feels encouraged to defend its position, rather than just accept that the coins and tokens listed on its platform are actual securities.