SEC Takes Legal Action Against Kraken, Alleges Fund Commingling and Lack of Registration

The U.S. Securities and Exchange Commission (SEC) has intensified its regulatory scrutiny of cryptocurrency exchanges, with the latest target being Kraken, one of the world’s leading crypto platforms. 

The SEC filed a lawsuit in San Francisco federal court, accusing Kraken of unlawfully operating as a securities exchange without proper registration. 

This move is part of SEC Chair Gary Gensler’s broader efforts to bring the cryptocurrency market under regulatory oversight, asserting that digital assets fall under federal securities laws.

The lawsuit against Kraken alleges that the crypto exchange, operating under Payward Inc. and Payward Ventures Inc., has been conducting crypto purchases and sales since 2018 without adhering to securities laws. 

The SEC claims Kraken turned a blind eye to investor protection measures, violating internal controls and record-keeping standards. 

The accusation also involves commingling customer funds with the exchange’s own funds, a practice deemed risky for investors. Kraken has responded by asserting that the SEC’s interpretation of digital assets is flawed and that Congress should determine cryptocurrency exchange regulation.

SEC’s Broader Crypto Crackdown

This legal action against Kraken follows similar lawsuits filed by the SEC against other major cryptocurrency exchanges, including Binance and Coinbase. 

The SEC contends that these exchanges have failed to comply with regulations designed to safeguard investors. The accusation of commingling customer funds has been a recurrent theme in these lawsuits. 

While Binance and Coinbase are also facing legal challenges, Kraken’s case adds to the growing tension between cryptocurrency exchanges and regulatory authorities.

Kraken, a prominent player in the cryptocurrency industry since its founding in 2011, has vowed to defend itself against the SEC’s allegations. The exchange argues that any perceived commingling of funds was merely the spending of fees earned, not an illicit practice. 

The legal battle between Kraken and the SEC could have significant implications for the broader crypto landscape. If the SEC’s claims hold, the lawsuit seeks civil fines, disgorgement of gains, and a court order to halt Kraken from operating as an unregistered exchange.