Wall Street’s top watchdog has sued popular cryptocurrency exchange Kraken, alleging it was acting as an unregistered securities firm. The exchange also had to mix funds collected by clients with its own funds.
The US Securities and Exchange Commission has brought new charges against a major player in the cryptocurrency market. The Kraken exchange was accused of mixing funds raised by clients with its own funds and of unregistered activities in the securities market.
Allegations against Kraken
According to the US regulator, the company used bank accounts containing user funds to pay operating expenses. According to the civil lawsuit, Kraken’s independent auditor determined that the pooling practice posed a “significant risk of loss” to the platform’s customers. At times, the exchange’s client crypto assets exceeded $33 billion.
“We allege that Kraken made a business decision to raise hundreds of millions of dollars from investors rather than comply with securities laws,” said Gurbir Grewal, director of the SEC’s Division of Enforcement. “This decision has resulted in a business model rife with conflicts of interest that put investor funds at risk.”
“Kraken favors illicit profits over investor protection, which is all too common in this space,” he added.
Kraken’s 2023 auditor found that accounting problems with the company’s entrusted client assets led to “material errors” in its 2020 and 2021 financial statements, according to the SEC complaint.
“We disagree with the SEC’s complaint against Kraken, maintain our steadfast position that we do not list securities, and plan to vigorously defend our position,” Kraken said in a statement.
“The Securities and Exchange Commission (SEC) has repeatedly called on cryptocurrency exchanges to join and register without a single law to support their position and without a clear path to registration. And despite opposition from lawmakers, the SEC continues to file lawsuits against these cryptocurrency exchanges,” the company said.
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