The U.S. Securities and Exchange Commission (SEC) has initiated legal proceedings against the cryptocurrency exchange Kraken, claiming it has been operating an unregistered securities trading platform.
The SEC filed the lawsuit in North District of California against the parent firms of Kraken, Payward Ventures, Inc. and Payward Trading Ltd. According to the SEC’s complaint, Kraken has provided unregistered crypto trading and transaction services to the public and allegedly created risks for its investors.
“Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange, and clearing agency with respect to these crypto asset securities.” The SEC wrote in the filing, “In doing so, Kraken has created risk for investors and taken in billions of dollars in fees and trading revenue from investors without adhering to or even recognizing the requirements of the U.S. securities laws that are designed to protect investors.”
In addition, the SEC also stated that the company posed “significant risks” by mixing the users’ and investors’ crypto assets with its own corporate assets. “For example, Kraken has at times held customer crypto assets valued at more than $33 billion, but it has commingled these crypto assets with its own,” said the SEC.
The SEC proceeded with specific instances to specify Kraken’s alleged wrongdoing. “In fact, Kraken has at times paid operational expenses directly from bank accounts that hold customer cash,” said the SEC. The agency also believed that according to the independent auditor, issues “related to Kraken’s recordkeeping of customer custodial assets” have resulted in “material errors to Kraken’s financial statements for 2020 and 2021.”
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