Key Takeaways
- The U.S. SEC has charged Kraken with operating anunregistered securities exchange, broker, dealer, and clearing agency.
- This lawsuit against Kraken is similar to charges filed by the SEC against crypto exchanges Binance, Bittrex and Coinbase earlier in the year.
- The lawsuit also alleges Kraken commingled customers' crypto assets and cash reserves with their own holdings.
- Earlier this year, Kraken paid a $30 million settlement for charges related to its staking-as-a-service offering.
The U.S. Securities and Exchange Commission (SEC) fired a fresh salvo in its cryptocurrency crackdown on Monday when it sued Kraken for operating an unregistered securities exchange and allegedly mixing customer funds with its own.
Kraken Under Scrutiny Again
The regulator has long held the view that most cryptocurrency tokens are securities and crypto exchanges offering sale of those tokens need to register as such. The latest suit against Kraken is not much different from the ones the SEC filed against rival exchanges Binance, Bittrex and Coinbase (COIN) earlier in the year.
Filed before a U.S. district court in California, the lawsuit against Kraken names specific cryptocurrencies the SEC considers securities and alleges Kraken is running an unregistered securities exchange by offering them for sale.
These tokens include Cardano (ADA), Cosmos (ATOM), Dash (DASH), Filecoin (FIL), Internet Computer (ICP), Polygon (MATIC), and Solana (SOL), among others.
This is the second enforcement action Kraken has faced this year, as the crypto exchange previously paid a $30 million settlement for charges related to their staking-as-a-service offering back in February.
Kraken Comingled Customer Funds?
Comingling or mixing customer funds with its own is another allegation Kraken faces in the SEC's complaint.
"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, creating what its independent auditor had identified in its audit plan as 'a significant risk of loss' to its customers," the filing said.
The regulator also alleges Kraken has on occasion "paid operational expenses directly from bank accounts that hold customer cash." The company's business practices, internal controls, and recordkeeping were also found lacking.
Comingling user funds was also one of the allegations faced by now-defunct crypto exchange FTX and its founder Sam Bankman-Fried.
“We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
Naturally, Kraken disagrees with the SEC.
"The SEC famously argues that digital asset trading platforms like Kraken can simply 'come in and register' with the agency," the company said in a blog post. "As most securities law experts know, there is not a single law on the books supporting this position."
Do you have a news tip for Investopedia reporters? Please email us at
[email protected]
FAQs
Established in 2013, Kraken offers strong security and protection for your crypto investments. Cold wallets: 95 percent of Kraken's crypto funds are stored in cold wallets, safe and out of reach of hackers. Server security: Kraken servers are in cages, physically monitored by security cameras and guards 24/7.
Is Kraken registered with the SEC? ›
The Securities and Exchange Commission today charged Payward Inc. and Payward Ventures Inc., together known as Kraken, with operating Kraken's crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.
What is the Kraken controversy? ›
In November, the SEC hit Kraken with a new lawsuit, this time focused on its crypto trading business. Similar to suits filed against Coinbase and Binance, the SEC alleged that Kraken operated as a traditional securities exchange, broker, dealer, and clearinghouse without registering with the agency.
What happened to Kraken Exchange? ›
The SEC's lawsuit alleges Kraken of multiple securities law violations and accuses the exchange of intertwining customer funds with corporate assets in ways that pose significant risks. Specifically, Kraken is accused of operating as an unregistered securities exchange, broker, dealer, and clearing agency since 2018.
Is Kraken legit or not? ›
While both Coinbase and Kraken are highly trusted cryptocurrency exchange platforms, Coinbase's benefits are more specific to U.S. traders, while Kraken is the best for international traders overall.
Do I own my crypto on Kraken? ›
Kraken Exchange is a platform that facilitates the buying, selling, and trading of cryptocurrencies. It acts as an intermediary between buyers and sellers, providing a marketplace for clients to exchange digital assets. Kraken Exchange has full custody of the crypto assets on the platform.
Is Kraken under investigation? ›
On November 20, the Securities and Exchange Commission (SEC) instituted a civil enforcement action against Kraken, a major U.S. cryptocurrency exchange. The SEC alleged Kraken operated as an unregistered broker, dealer, exchange, and clearing agency, in violation of the Securities Exchange Act.
What states don t allow Kraken? ›
Kraken offers most services to our American clients, with the following restrictions:
- No services to NY, WA and ME residents.
- On-chain staking restrictions.
- State-by-state funding restrictions.
- Futures trading restrictions.
- Margin trading requirements.
- Cash-to-cash trading restriction.
- Earn restrictions.
Kraken is not closing accounts, but they are upgrading their wallet infrastructure and legacy addresses are set to expire on the 12th of February 2023. If you don't generate a new address before the expiry date, any attempt to send anything to a legacy address after the 12th of February may not come through.
What killed the Kraken? ›
What happened to the Kraken? Beckett made Jones kill the Kraken. He describes his order as having had Jones kill his "pet." You can see its corpse later on the beach. How Jones killed the beast is unknown.
It is assumed that Zeus forced Hades to lock up the Kraken so he wouldn't harm anyone. The Kraken was released onto Argos to destroy it, but Perseus slayed him with Medusa's head that turned the beast to stone, before crumbling into pieces.
Is Kraken liable for my losses? ›
It is not liable for any client trading losses nor the performance of any cryptoasset on the platform. Cryptoassets on the platform are reviewed by Kraken prior to making them available for trading.
Why can't i withdraw crypto Kraken? ›
You may receive an error message or not be able to withdraw for the following reasons: The amount is below the minimum withdrawal amount listed. This amount cannot exceed your account balance. Invalid Password / Permission Denied error.
Is my crypto safe on Kraken exchange? ›
We offer stability, with proof of reserves, healthy banking relationships and the highest standards of legal compliance. Kraken's comprehensive approach to cybersecurity and information security management systems has earned us the ISO/IEC 27001:2013 certification and allowed us to complete a SOC 2, Type 1 examination.
Why is Kraken not letting me buy crypto? ›
If your purchase cannot be completed, it could be due to one these scenarios: You do not have enough funds in your account balance for the transaction. Your funds are currently being used for open orders or margin positions. The transaction value is below the minimum requirement.
What is the disadvantage of Kraken? ›
Kraken's Disadvantages
Kraken's beginner trading program, Instant Buy, has some pretty hefty trading fees, and unfortunately, beginning crypto investors may not even be aware of how uncompetitive these fees are.
Is Kraken as safe as Coinbase? ›
Both platforms take extensive measures to ensure the security of their users' funds. Coinbase holds 98% of its customer's digital assets in offline storage, while Kraken offers multi-factor authentication and cold storage for user funds.
Can my Kraken account be hacked? ›
If the email account registered to your Kraken account is compromised, it can be used to request your username, reset your password and approve withdrawals. Note: We strongly recommend setting up an email account that you only use for Kraken.
Can you hold crypto on Kraken? ›
Kraken is an exchange providing clients the ability to deposit funds to our corporate wallet for safekeeping while the funds are being exchanged or used for trading or staking*.
