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Kraken, the popular U.S.-based centralized exchange, is the latest web3 entity to face legal action from the U.S. Securities and Exchange Commission, with the SEC accusing Kraken of illegally offering unlicensed securities to retail investors.<\/p>\n
In a complaint<\/a> filed on Nov. 20, the SEC claims Kraken operated as an unregistered broker, clearing agency, and dealer, and created \u201csignificant risk\u201d for users by commingling $33B worth of customer assets.<\/p>\n \u201cKraken has held at times more than $5 billion worth of its customers’ cash, and it also commingles some of its customers’ cash with some of its own,” the SEC asserted. “Kraken has at times paid operational expenses directly from bank accounts that hold customer cash.”<\/p>\n The SEC additionally claims Kraken facilitated trade in unlicensed securities, including the MATIC, NEAR, and ALGO tokens, and accused the exchange of failing to maintain appropriate internal record-keeping.<\/p>\n <\/a><\/p>\n The regulator is seeking fines, disgorgement of ill-gotten gains, and a halt on Kraken acting as an exchange without licensing as punishment.<\/p>\n The news serves as the latest example of the SEC waging war against the web3 industry via a campaign of regulation by enforcement<\/a>.<\/p>\n The SEC levied similar complaints<\/a> against Binance, the leading centralized exchange, and Coinbase, the top U.S.-based exchange, in June. Kraken also shuttered its custodial staking service as part of a settlement<\/a> with the SEC in February.<\/p>\n Coinbase pledged to fight the charges. The exchange filed its own lawsuit<\/a> against the SEC in April for failing to adhere to its formal rule-making process when regulating the crypto industry.<\/p>\n In a statement<\/a> published to its website, Kraken also vowed to fight the SEC\u2019s lawsuit.<\/p>\n \u201cThe complaint against Kraken alleges no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty,\u201d Kraken said. \u201cInstead, the complaint makes a technical argument: that Kraken\u2019s business requires special securities licenses to operate because the digital assets we support are really \u2018investment contracts\u2019. This is incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.\u201d<\/p>\n Kraken noted U.S. District Judge Analisa Torres\u2019 July ruling<\/a> that assets sold via securities contracts do not automatically comprise securities that threw a wrench into the SEC\u2019s lawsuit against Ripple Labs.<\/p>\n\n