Crypto exchange Kraken commingled customer and corporate funds while operating as an unregistered broker, clearing agency and dealer, the U.S. Securities and Exchange Commission (SEC) alleged in a new lawsuit Monday .
The federal regulator claimed the San Francisco-based company violated federal securities laws in a repeat of its lawsuits against other crypto trading platforms. What is unique about Monday’s trial are claims that Kraken created “significant risk” by mixing up to $33 billion of customer cryptocurrency with its own corporate assets, the regulator said, citing Kraken’s independent auditor.
“Similarly, Kraken at times held more than $5 billion of its customers’ cash, and it also commingled some of its customers’ cash with some of its own,” the suit states. “In fact, Kraken sometimes paid its operational expenses directly from bank accounts containing customer cash.”
The SEC claims Kraken simultaneously operates an unregistered broker-dealer, clearinghouse and exchange, echoing its complaints against Binance and Coinbase, two exchanges the agency sued earlier this year.
The federal regulator, as it did in these previous lawsuits, listed a number of tokens that it considered unregistered securities, including the Algorand token (ALGO), Polygon’s MATIC, and NEAR. According to the lawsuit, Kraken played a direct role in promoting these tokens to the investing public.
The SEC filing asks to permanently ban Kraken from operating as an unregistered exchange. The agency says it is also seeking a fine and for Kraken to return ill-gotten gains.
“We disagree with the SEC’s complaint against Kraken, remain firm that we do not cotton and plan to vigorously defend our position,” Kraken said in a statement. “The SEC has repeatedly challenged crypto exchanges to come register without a single law supporting their position and without a clear path to registration. And despite opposition from lawmakers, the SEC continues to bring challenges lawsuits against these crypto exchanges. For years, we have advocated for effective regulation of the U.S. market that addresses the unique risks and benefits that crypto presents to all individuals. We believe congressional action is the right path forward. more appropriate to address the lack of regulatory clarity in the U.S. It is disappointing to see the SEC continue down this path of regulation by enforcement, which harms U.S. consumers, inhibits innovation, and harms U.S. competitiveness in the future. global scale.
The exchange also published a blog post outlining its position.
UPDATE (November 20, 2023, 11:05 p.m. UTC): Adds additional details and links.
UPDATE (November 21, 2023, 00:29 UTC): Adds a Kraken statement.
Gn En bus