SEC Sues Kraken Crypto Exchange for Unregistered Securities Trading


In a significant legal action, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Kraken, one of the world’s largest cryptocurrency exchanges, alleging that it operated as an unregistered securities exchange, broker, dealer, and clearing agency. The SEC’s complaint, filed in San Francisco federal court on November 20, 2023, accuses Kraken of failing to register its crypto trading platform with the agency, in violation of U.S. securities law. According to the SEC’s complaint, “since at least September 2018, Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities.” Additionally, the commission says that Kraken combines the services of an exchange, broker, dealer, and clearing agency. However, the SEC alleges that Kraken does all of this, without having registered any of those functions with them, as required by law.

The SEC’s complaint seeks a variety of remedies against Kraken, including injunctive relief to prevent further violations of securities laws, civil penalties, disgorgement of ill-gotten gains, and a requirement that Kraken register with the agency as a securities exchange.

Furthermore, the SEC complains in the lawsuit that Kraken risks its customers’ personal and financial information with its business practices and “poor recordkeeping.” “Kraken commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash,” the SEC’s statement reads. “Kraken also allegedly commingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.”‘

Kraken pushed back against the SEC’s accusations with a spokesperson saying the exchange never listed unregistered securities. Kraken intends to defend itself, saying Congress should decide how to regulate cryptocurrency exchanges and calling the SEC view of digital assets “incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.” The San Francisco-based exchange also said the lawsuit will not affect its more than 10 million clients. In its statement, Kraken said the SEC complaint conceded that any alleged “commingling” amounted to “no more than Kraken spending fees it has already earned.”

In June, the SEC filed similar lawsuits against Binance, the world’s largest cryptocurrency exchange, and Coinbase, the largest in the United States. Both are defending against the regulator’s claims. The accusations that Kraken operated as an unregistered broker for crypto assets echo those made in respective lawsuits against Coinbase and Binance in June.

The outcome of the SEC’s lawsuit against Kraken remains to be seen, but it is clear that the SEC is taking a strong stance on regulating the cryptocurrency industry. The lawsuit is likely to have a ripple effect throughout the industry, as other crypto exchanges take steps to ensure that they are operating in compliance with U.S. securities laws.