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The US Securities and Exchange Commission (SEC) has initiated a federal lawsuit against Kraken, the world’s third-largest cryptocurrency exchange, alleging its operation without supervisory approval. This move by the financial markets regulator challenges the industry’s perception that regulatory pressure might be easing after recent court rulings against Binance and Coinbase.
The SEC commenced legal action against Kraken in federal court in San Francisco, targeting Payward and Payward Ventures, the entities behind the exchange. The SEC claims that Kraken intertwines various traditional financial services without proper registration, depriving investors of necessary protections, including SEC inspection, record-keeping requirements, and safeguards against conflicts of interest.
Additionally, Kraken is accused of commingling customer funds with its own for operating expenses, posing a “significant risk of loss” to customers, as reported by the companies’ auditor, according to the SEC. The regulator contends that Kraken’s business model is fraught with conflicts of interest jeopardizing investors’ funds.
In response, Kraken disputes the SEC’s allegations, asserting that it is not required to register with the regulator. The company plans to vigorously defend its position in court, emphasizing that the SEC’s actions will not impact its services.
While the SEC’s recent legal setbacks in October raised hopes for a more lenient stance on cryptocurrency regulation, the charges against Kraken underscore continued regulatory scrutiny in the crypto space.
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