The U.S. Securities and Exchange Commission filed a lawsuit against Kraken, one of the biggest cryptocurrency exchanges globally, on Monday, alleging that the company had been operating unlawfully as a securities exchange without first registering with the agency.
SEC Chair Gary Gensler is attempting to include bitcoin within his agency’s jurisdiction with this lawsuit in federal court in San Francisco. He is arguing that digital assets are investment contracts that fall under federal securities regulations.
With Congress having the last say on bitcoin exchange regulations, Kraken plans to fight back, labeling the SEC’s position on digital assets as “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.”
Additionally, the San Francisco-based exchange stated that its more than 10 million clients will not be impacted by the case.
Similar complaints were filed by the SEC in June against Coinbase, the largest cryptocurrency exchange in the US, and Binance, the largest cryptocurrency exchange worldwide. Both are disputing the assertions made by the regulator.
According to the SEC, since 2018, Payward Inc. and Payward Ventures Inc., the companies that run Kraken, have gained hundreds of millions of dollars arranging the purchase and sale of cryptocurrency while “blinding eye” securities regulations meant to safeguard investors.
Additionally, Kraken was charged with having poor internal controls and poor record keeping, which was partly evidenced by the company’s mixing of user funds with its own and payment of operational expenses from customer accounts.
SEC enforcement head Gurbir Grewal stated in a statement that the failure to register “resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.” “Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space.”
According to Kraken’s comment, the SEC complaint acknowledged that any purported “commingling” was “no more than Kraken spending fees it has already earned.”
Additionally, the SEC charged Binance for commingling client assets in response to a Reuters article detailing the same behavior. The charge of commingling has been refuted by Binance.
