The U.S. Securities and Exchange Commission (SEC) has sued Payward Inc. and Payward Ventures Inc. (collectively Kraken) for operating a cryptocurrency trading platform without the required registration. The complaint filed in San Francisco alleges violations have occurred since September 2018. Kraken is accused of operating as an unregistered exchange, broker, dealer and clearinghouse and consolidating the roles of these entities without proper registration. This reportedly deprived investors of important protections, such as SEC scrutiny and conflict-of-interest safeguards.
The SEC’s complaint outlines several concerns, including that Kraken provides a marketplace for trading securities and effectively operates as an exchange. Acts as a broker by engaging in securities transactions for clients. He acts as a dealer and buys and sells securities for his own account. It operates as a clearing agency by acting as an intermediary for cryptocurrency securities transactions. The complaint also alleges that Kraken’s business practices, including lack of internal controls and poor record keeping, pose risks to customers. In particular, Kraken has been accused of mixing customer funds with its own funds, creating potential risk of loss.
SEC Enforcement Division Director Gurbir S. Grewal emphasized the agency’s position that Kraken favors profits over investor protection. The SEC seeks injunctive relief, recovery of profits and interest, and fines. In early February, Kraken agreed to a $30 million fine and stopped providing cryptocurrency asset staking services.
The lawsuit is part of a broader crackdown on the SEC. cryptocurrency exchange It is operating without proper registration. Similar claims have been made against other exchanges such as Binance and Coinbase. The SEC’s list of unregistered securities includes tokens such as ALGO, MATIC, and NEAR. Kraken’s response, expressed by CEO Dave Ripley, is to dispute the SEC’s claims and defend its position not to list its securities. Debate continues over the SEC’s approach to cryptocurrency exchanges and the lack of a clear regulatory path.
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