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Kraken Faces SEC Lawsuit Over Alleged Regulatory Violations and Fund Misuse

Kraken Faces SEC Lawsuit Over Alleged Regulatory Violations and Fund Misuse

Key Takeaways

  • The SEC has sued Kraken for allegedly operating without proper registration and mixing customer funds with its own.
  • Kraken disputes the allegations, asserting it does not list unregistered securities and criticizes the SEC's regulatory approach.
  • The lawsuit could have significant implications for cryptocurrency regulation and echoes previous actions against other major crypto exchanges.

The United States Securities and Exchange Commission (SEC) has initiated legal action against Kraken, one of the major cryptocurrency exchanges.

The lawsuit, filed on November 20th in a federal court in San Francisco, accuses Kraken of operating without proper registration and commingling customer funds with its own.

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This move by the SEC, led by Gary Gensler, underscores the agency's intent to crack down on the crypto industry.

The SEC's complaint alleges that since 2018, Kraken has been illegally enabling US citizens to buy and sell cryptocurrencies. The agency contends that Kraken acted as a broker, dealer, crypto exchange, and clearing agency for crypto asset securities without the necessary registration.

Furthermore, the SEC claims that Kraken's internal controls were deficient, leading to the commingling of up to $33 billion of customer assets with the crypto exchange's funds. According to the SEC, this practice posed a significant loss risk to Kraken's clients.

Gurbir Grewal, the director of the SEC's enforcement division, stated:

We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws.

In response to these allegations, a Kraken spokesperson expressed disagreement with the SEC's complaint and emphasized the crypto exchange's commitment to defend its stance in court.

The spokesperson refuted the claim of listing unregistered securities, stating:

We disagree with the SEC’s complaint against Kraken, stand firm in our view that we do not list securities and plan to vigorously defend our position.

Additionally, Kraken criticized the SEC's approach as detrimental to American consumers and innovation. Moreover, Kraken's spokesperson added that no user funds are missing.

The SEC's complaint identifies 16 cryptocurrencies, including Cardano (ADA), Algorand (ALGO), Polygon (MATIC), and Solana (SOL), as securities. The lawsuit seeks penalties and injunctive relief against Kraken and demands the return of what it describes as "ill-gotten gains."

It is worth noting that this is not the first face-off between Kraken and SEC. On February 9th, Kraken agreed to pay $30 million to the SEC and ceased offering crypto-staking products and services to US customers.

This lawsuit against Kraken is not the first time the SEC went after US-based crypto exchanges. It follows similar actions against other major crypto companies like Coinbase and Binance earlier this year

The SEC's lawsuit against Kraken is crucial in the ongoing debate over regulating the cryptocurrency industry. It signals the agency's determination to enforce existing securities laws in the rapidly evolving crypto market. Industry participants and regulators alike will closely watch this case, as its outcome could have far-reaching implications for the future of cryptocurrency regulation.

Gile K., Market Sentiment Analyst
Gile is a Market Sentiment Analyst who understands what public events may form what emotions. Her experience researching Web3 news and public market messages – including cryptocurrency news reports, PRs, and social network streams – is critical to her role in helping lead the Crypto News Editorial Team.
As an intelligent professional in public relations, together with the team, she aims to determine real VS fake news patterns, and bring her findings to anyone searching for unbiased news and events happening in the FinTech markets. Her expertise is uncovering the latest trustworthy & informative Web3 announcements to the masses.
When she's not researching the trustworthiness of mainstream stories, she spends time enjoying her terrace view and taking meticulous care of her outdoor environment.

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