The U.S. Securities and Exchange Commission (SEC) has launched its second legal salvo against leading cryptocurrency exchange Kraken, accusing the platform of operating as an unregistered securities exchange, broker, dealer, and clearing agency. This marks the second lawsuit filed by the SEC against Kraken in the span of a year, following a February action related to the exchange's staking program, which resulted in a $30 million settlement.
In a press release on Monday, the SEC named "Payward Inc. and Payward Ventures Inc., together known as Kraken," detailing allegations that the crypto trading platform intertwined traditional exchange services without the requisite registration with the Commission. The SEC's legal filing contends that Kraken has been operating in this capacity since at least September 2018.
The regulatory body further underscored concerns over Kraken's business practices, highlighting "deficient internal controls and poor recordkeeping practices" that, according to the SEC, pose a spectrum of risks to Kraken's clientele. The SEC accused the exchange of commingling customer funds with its own, including covering operational expenses directly from accounts holding customer cash. Additionally, the watchdog claims that Kraken has been listing crypto securities without proper authorization.
The SEC is seeking a range of legal actions against Kraken, including "injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties."
In response to the SEC's legal offensive, Kraken swiftly issued a statement asserting its disagreement with the claims and its commitment to a vigorous defense in court. The exchange refuted any allegations of fraud, market manipulation, or customer losses due to security breaches. Kraken emphasized that while the SEC's complaint involves substantial dollar amounts, it does not imply any missing or misused funds, dismissing accusations of Ponzi schemes or inadequate reserve maintenance.
Dave Ripley, CEO of Kraken, took to social media platform X to express the company's stance. "We strongly disagree with the SEC claims, stand firm in our view that we do not list securities, and plan to vigorously defend our position," Ripley stated. He further criticized the SEC's insistence on registration, citing the lack of a clear path to such compliance.
As Kraken braces for another legal battle, the cryptocurrency industry closely watches this latest development, contemplating potential ramifications for regulatory oversight in the evolving digital asset landscape.
