Kraken Charged by the Securities and Exchange Commission for Non-Compliance
Today, Payward Inc. and Payward Ventures Inc., collectively referred to as Kraken, were charged by the Securities and Exchange Commission (SEC) for running Kraken’s crypto trading network as an unregistered securities exchange, clearing agency, broker, and dealer. .
The Securities and Exchange Commission’s complaint, since at least September 2018, shows how Kraken generated millions of dollars by illegally aiding in purchasing and selling crypto asset securities.
Kraken Hit By New Lawsuit
The agency asserts that Kraken interlaces the traditional services of a broker, exchange, clearing agency, and dealer without registering these functions as the law requires. The supposed failure to register the functions has deprived investors of major protections.
This entails recordkeeping requirements, inspection by the Securities and Exchange Commission, and protections against conflicts of interest.
The SEC indicated in its platform that the cryptocurrency exchange purportedly offers a marketplace that combines the orders for several buyers’ and sellers’ securities using recognized and non-permissive strategies under which these kinds of orders interact, operating as an exchange.
The regulator indicates that it executes transactions for Kraken clients’ accounts, hence operating as a broker. The allegations alleged it assumed an intermediary role in handling transactions in crypto asset securities by Kraken clients. Besides, it operates as a securities depository, hence running as a clearing agency.
Its participation in the purchase and sale of securities for its account in the absence of an applicable exception, hence operating as a dealer.
The Securities and Exchange Commission’s complaint also contends that the cryptocurrency exchange’s business practices, bad recordkeeping practices, and inadequate internal controls present numerous risks for clients.
As the complaint alleges, Kraken combines its clients’ funds with its own, which includes payment for operational costs directly from accounts containing clients’ money. Further, Kraken purportedly merges its clients’ crypto assets with its own, creating what its auditor refers to as a ‘considerable risk of loss to its clients.’
SEC Takes Legal Actions Against Non-Complaint Firms
According to Gurbir S. Grewal, the SEC’s Division of Enforcement Director, Kraken decided to reap several millions of dollars from investors instead of adhering to the securities regulations. The decision led to a business model with a high prevalence of conflicts of interest that endangered investors’ funds.
Further, he said that the crypto exchange’s choice of illegal profits over investor security is something they see regularly, and they are holding Kraken responsible for its wrongdoing. Besides, a compliance message is being sent to others.
The Securities and Exchange Commission’s complaint was filed in the federal district court in San Francisco and asserts that Kraken contravened the Securities Exchange Act of 1934’s registration provisions. In addition, it seeks conduct-founded directives, injunctive relief, penalties, and repayment of ill-acquired games plus interest.
In February, the crypto exchange agreed to stop using crypto asset staking services or programs to provide or sell crypto securities. It also agreed to pay a civil fine of $30M.
The SEC hailed different individuals for their input in executing the probe. They included Jennie B. Krasner and Elizabeth Goody of the Division of Enforcement’s Crypto Assets and Cyber Unit and Peter Moores of the Boston Regional Office with aid from Pasha Salini and Sachin Verma.
Jorge Tenreiro, Paul Kim, and David Hirsch of the Crypto Assets and Cyber Unit oversaw the investigation. Daniel Blau, Alec Johnson, and Mr. Moores will lead the SEC’s litigation, while Mr. Tenreiro, Douglas Miller, and Olivia Choe will oversee the three.
