SEC Sues Crypto Exchange Kraken, Alleges It Is Unregistered Broker -- WSJ


Dow Jones


By Vicky Ge Huang, Mengqi Sun and Dave Michaels


The Securities and Exchange Commission sued Kraken on Monday, alleging that it violated investor protection laws that require it to comply with the same rules stock exchanges face.

The SEC also alleged that Kraken commingled customers' crypto assets and fiat currencies with its own, creating what its independent auditor had identified in its audit plan as "a significant risk of loss" to its customers. The complaint alleges Kraken has at times paid operational expenses from the same bank account that holds its customers' cash.

The SEC alleges that Kraken acted simultaneously as a broker, dealer, exchange and clearing agency without registering with the agency.

The lawsuit comes after Kraken agreed to stop offering so-called crypto staking services in the U.S. and pay $30 million in penalties to the SEC in February.

The case shows that the SEC continues to file new crypto enforcement actions despite setbacks in its legal fights with Grayscale Investments] this year. The SEC has used enforcement actions to try to force crypto companies to follow the same regulations that bind Wall Street.

The biggest crypto defendants have vowed to fight the SEC in court. The lawsuit against Kraken, filed in San Francisco federal court, adds to the agency's portfolio of complex litigation.

The lawsuit against Kraken echoes similar claims the SEC made in June when it sued Coinbase . Coinbase has asked a federal court to dismiss the lawsuit. A hearing on the company's motion is scheduled for January.

The SEC now alleges that Kraken traded at least 16 crypto assets that are securities and that should have been registered with regulators before they were issued.

A spokesperson for Kraken didn't immediately respond to a request for comment. The lawsuit seeks unspecified financial penalties.


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November 20, 2023 18:19 ET (23:19 GMT)

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