Kraken has been charged by the US Securities & Exchange Commission (SEC) for providing services for which it was not legally registered. It is said that Kraken Inc. and Kraken Ventures Inc. were discovered acting as clearing agencies, dealers, brokers, and securities exchanges. The Securities Exchange Act of 1934 is broken by this, and there will be repercussions.
The Commission’s requests are rather simple: disgorgement of unjustified profits, penalties, conduct-based injunctions, and injunctive relief. According to reports as of February 2023, Kraken has complied with the payment of $30 million in civil penalties. According to the SEC press release, the case has been filed in the San Francisco district court.
It further states that through illegitimately enabling the trading of assets backed by cryptocurrency, Kraken has amassed millions of dollars since September 2018. As mandated by law, the platform was initially expected to register its goods and services with the SEC, but it never did.
According to the press release, many investors have lost protection from conflicts of interest, recordkeeping, and SEC inspections on a regular basis because they failed to register with the Commission.
Allegations have surfaced that Kraken is combining its own funds with those of its clients in order to pay for running costs. In a similar vein, Kraken is accused of combining its clients’ assets with its own, putting them at serious risk of financial loss.
In this case, holding Kraken responsible has two benefits: it aims to change the way the platform functions and issue a strong caution to other platforms about abiding by the law to prevent similar incidents. The SEC’s Director of Division of Enforcement, Gurbir S. Grewal, has stated that the industry much too frequently offers the option of making illegal gains.
By offering a marketplace where orders for securities are brought together, Kraken functions as an exchange. Then, by conducting business that influences securities transactions for client accounts, it serves as a broker. Platforms that engage in the buying and selling of securities without any relevant exclusions have the ability to function as dealers. Lastly, when it assists in the settlement of transactions involving crypto asset securities, acting as an intermediary confirms its designation as a clearing agency.
The Co-CEOs of Bitwise Industries were previously accused by the SEC of forging documents in order to deceive investors out of $70 million. After the plan was made public in May 2023, every Bitwise employee lost their job. The claims that Irma Olguin Jr. and Jake Soberal misled investors are currently being contested. Kraken has not yet released a formal comment, however the SEC has released a press release. The ultimate objective is to assist investors in protecting their money and put websites like Kraken under regulation.