Nov 20 (Reuters) – Kraken, one of the world’s largest cryptocurrency exchanges, was sued on Monday by the U.S. Securities and Exchange Commission, which accused it of illegally operating as a stock exchange without first registering with the regulator.
The lawsuit in federal court in San Francisco is the latest step in SEC Chairman Gary Gensler’s push to bring cryptocurrencies under his agency’s purview, maintaining that digital assets are investment contracts subject to the laws. federal securities.
Kraken intends to fight back, saying Congress should decide how to regulate cryptocurrency exchanges and calling the SEC’s view on digital assets “wrong 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 customers.
In June, the SEC filed similar lawsuits against Binance, the world’s largest cryptocurrency exchange, and Coinbase, the largest in the United States. Both defend themselves against the regulator’s claims.
The SEC said Payward Inc and Payward Ventures Inc, doing business as Kraken, have since 2018 made hundreds of millions of dollars by arranging purchases and sales of cryptocurrencies while turning a blind eye to securities laws designed to protect investors.
Kraken was also accused of having poor internal controls and inadequate record-keeping, reflected in part by commingling customer money with its own and paying operating costs directly from customer accounts.
Failure to register has “resulted in a business model rife with conflicts of interest that put investor funds at risk,” SEC enforcement chief Gurbir Grewal said in a statement. “Kraken’s choice to illegally profit instead of protecting investors is something we see all too often in this space.”
In its statement, Kraken said the SEC’s complaint admitted that any alleged “commingling” amounted to “no more than the spending fees Kraken had already earned.”
The SEC also accused Binance of commingling client funds, following a Reuters report outlining such conduct. Binance has denied the allegation of commingling.
Monday’s lawsuit seeks a civil penalty, disgorgement of ill-gotten gains and an end to acting as an unregistered exchange.
Kraken was founded in 2011. It is backed by investors such as Blockchain Capital, Digital Currency Group, Hummingbird Ventures, SkyBridge, and Tribe Capital.
The case is SEC v Payward Inc et al, U.S. District Court, Northern District of California, No. 23-06003.
