On November 20, 2023, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit in the Northern District of California against the cryptocurrency exchange Kraken, accusing it of illegal activity.
The lawsuit alleges that Kraken provided services as a securities exchange without first registering with the regulator, which is a direct violation of U.S. law. According to the SEC, digital assets are investment contracts subject to federal securities laws.
In addition, the lack of registration deprived investors of many protections, including SEC examinations, recordkeeping requirements, and conflicts of interest protections.
The regulator also alleges that Kraken had inadequate internal controls and improper record-keeping, exposing its clients to numerous risks. The SEC alleges that Kraken commingles its clients' funds with its own and pays operating expenses directly from accounts that hold users' funds.
In its complaint, the SEC seeks an administrative fine against Kraken, disgorgement of ill-gotten gains, and termination of the exchange for operating without proper registration.
Recall that in early February, Kraken agreed to the SEC's demands to stop offering or selling securities through cryptoasset placement services or programs and paid a $30 million fine.
In response to the lawsuit, Kraken said it would defend itself and also appeal to the U.S. Congress, which should clarify the issue of regulation of cryptocurrency exchanges as the SEC's view of digital assets as securities is incorrect and contrary to law.
Kraken Co-Founder Jesse Powell reacted heatedly to the SEC's lawsuit against the crypto exchange.
"For $30 million, you get about 10 months before the SEC starts extorting money out of you again," Powell said.
"USA's top decel is back with another assault on America. The masochists haven't been happy with the beatings they've been taking in NY and are shopping for a different flavor of RegDom in CA," he commented.
In a statement to users, Kraken said it will continue to operate despite the U.S. securities regulator's lawsuit.
"This will not affect the products we offer, and we will continue to provide our services to clients without interruption. We remain committed to doing what we believe is right for our users and the community of cryptocurrency innovators," the exchange said in a statement.
Further reading: U.S. Department of Justice offered Binance a deal to settle the charges.
