In yet another anti-crypto enforcement action, the US Securities and Exchange Commission (SEC) charged Kraken with operating its crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency. In response, the crypto exchange disagreed with the complaint, stating plans to ‘vigorously defend’ its position in court.

Operating As ‘Unregistered’ Securities Exchange

The US agency complained that over the last five years and possibly prior to that, Kraken unlawfully made hundreds of millions of dollars in its crypto trading business. While the agency’s view of crypto buying and selling as an act of crypto asset ‘securities’ has long been contested, the SEC continues to enforce law based on the same ambiguity. In its complaint dated November 20, 2023, the Commission said,

“The SEC alleges that Kraken intertwines the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law.”

By operating as an unregistered entity, Kraken had allegedly deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, the SEC said in its complaint.

Further, the US SEC argued that the crypto exchange had commingled customers money as well as crypto assets with its own operational funds. The complaint said Kraken allegedly paid operational expenses directly from accounts that hold customer cash. The exchange’s auditor had itself identified these observations as “a significant risk of loss” to its customers, it added.

The exchange had in statement said it disagrees with the charges and intends fight it out in court, in what could be the beginning of a long drawn crypto lawsuit against the SEC.