SEC Accuses Kraken as an Unregistered Exchange, Misappropriating Customer Funds

• SEC sues Kraken for commingling customer funds with its own funds and being an unregistered exchange.  
• Kraken has joined with other companies like Coinbase and Binance as targets of the Securities and Exchange Commission.
• SEC gives a list of tokens that are considered to be securities being traded on the unregistered platform Kraken. 

The Securities and Exchange Commission (SEC) has sued the crypto exchange, Kraken, for combining customer and corporate funds, all the while functioning as an unregistered exchange, dealer, broker, and clearing agency. Adam Cochran, an experienced fintech executive, has shared a tweet on X about the SEC’s claims on Kraken.

In a complaint filed at the San Francisco federal court on Nov 20, the SEC claimed that since the founding of Kraken, it has acted as a dealer, exchange, and clearing agency without registering with the SEC. It created a significant risk of loss to its customers by mingling customer crypto assets worth $33 billion with its own. Furthermore, at times when Kraken held more than $5 billion worth of customer cash, it commingles some of the cash with its own. The independent auditor said, “In fact, Kraken at times paid operational expenses directly from bank accounts that hold customer cash.”

This lawsuit marks the latest move made by the SEC Chair Gary Gensler and his team after suing Binance and Coinbase earlier this year. Gurbir Grewal, Director of the SEC’s enforcement division, said in a statement,

We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the security laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.

In the complaint, the SEC listed cryptocurrencies that are considered to be securities being traded in Kraken. The listed cryptocurrencies include ADA, AXS, ALGO, ATOM, CHZ, COTI, DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SOL. As per the filing, the SEC asked Kraken to permanently ban the operations of unregistered exchanges for violating the registration provinces of the Securities Exchange Act of 1934. Furthermore, the SEC is also trying to impose a fine on Kraken so that they can give back some of the ill-gotten wealth.

In retaliation against the SEC’s accusations, a spokesperson from Kraken clarified that they disagree with the SEC’s complaint against Kraken and plan to defend their position vigorously. 

The spokesperson continued by saying it was disappointing to see the SEC continue down the path of regulation by enforcement, which harms American consumers, stunts innovation, and damages the U.S. competitiveness globally.