On Monday, the SEC filed a new complaint against Kraken. The charges include the usual securities allegations, but also doubts about the integrity of customer funds. The exchange has publicly denied all allegations.
SEC charges Kraken with new complaint
On Monday, the Securities and Exchange Commission (SEC) filed a new complaint against cryptocurrency exchange Kraken. After its run-ins with the government agency earlier this year regarding its staking products, the exchange is this time accused of operating as an unregistered securities exchange.
Thus, the SEC’s press release repeats its usual laïus against cryptocurrency platforms regarding unregistered securities offerings. This includes custody and trading services for these supposed securities.
However, risks to the integrity of customer funds are also being highlighted. Indeed, the US financial watchdog accuses Kraken of mixing its own funds with those of its clients:
“As alleged in the complaint, Kraken mixes its customers’ money with its own, including paying operational expenses directly from accounts containing customers’ cash. Kraken also allegedly commingles its customers’ crypto-assets with its own, creating what its own auditor had identified as “a significant risk of loss” for its customers. “
Kraken publicly responds to accusations
Faced with this complaint, Kraken issued a public response to defend its position, formally denying what it was accused of:
Today, the SEC filed a complaint alleging that Kraken operates as an unregistered national securities exchange, broker, and clearing house. We disagree with their claims and plan to vigorously defend our position. https://t.co/a0C4wzBo3f
– Kraken Exchange (@krakenfx) November 21, 2023
So, the platform didn’t mince its words, denying point by point the statements made by the SEC in its complaint:
“In fact, none of these things would be true. Instead, the complaint advances a technical argument: that Kraken’s business requires special securities licenses to operate, because the digital assets we support are actually “investment contracts.” This is incorrect in law, wrong in fact and disastrous in policy terms. “
Furthermore, Kraken believes that the SEC has tried such maneuvers in the past, which ended in failure, referring here directly to its tussle with Ripple (XRP).
The exchange defends itself by pointing out that this would only concern transaction fees that have already been collected:
The SEC cannot and does not allege that customer funds are missing or that a loss has occurred. Nor does it allege that any loss will occur. The complaint itself concedes that this so-called “mix” is nothing more than the Kraken expense fees it has already earned. “
In such cases, each protagonist naturally tries to publicly defend his position to clear his name. In reality, it’s a case of waiting for the courts to rule, which in some cases can take several years.
