Crypto Wars Continue: SEC Files Lawsuit Against Kraken

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Kraken, the San Francisco-based cryptocurrency exchange, accusing it of operating as an unregistered broker, clearing agency, and dealer. This legal action follows similar actions taken by the SEC against other major cryptocurrency exchanges, including Coinbase and Binance.

The SEC alleges that Kraken violated federal securities laws by commingling customer and corporate funds, creating what it deems a "significant risk." According to the regulator, Kraken commingled up to $33 billion in customer cryptocurrencies with its own corporate assets. The SEC also claims that Kraken held over $5 billion worth of its customers' cash at times and paid operational expenses directly from bank accounts containing customer cash.

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The lawsuit asserts that Kraken operated as an unregistered broker, clearinghouse, and exchange, echoing similar complaints against other cryptocurrency platforms. The SEC listed specific tokens, including Algorand (ALGO), Polygon's MATIC, and NEAR, that it considers unregistered securities and alleges that Kraken played a direct role in promoting these tokens to the investing public.

The SEC's legal action seeks a permanent ban on Kraken operating as an unregistered exchange, along with fines and restitution of ill-gotten gains.

Kraken responded to the lawsuit with a statement, expressing disagreement with the SEC's complaint. The exchange asserted its position that it does not list securities and stated its intention to vigorously defend against the SEC's allegations. Kraken criticized the SEC's approach, claiming that the regulator challenges crypto exchanges to register without clear legal support or a path to registration. The exchange argued for effective U.S. market regulation tailored to the unique risks and benefits of the crypto industry.

Furthermore, Kraken emphasized the need for Congressional action to address the regulatory clarity gap in the U.S. cryptocurrency market. The exchange criticized the SEC's approach of "regulation by enforcement," contending that it harms American consumers, stifles innovation, and undermines U.S. competitiveness globally.

The legal action against Kraken is part of a broader regulatory scrutiny facing major cryptocurrency exchanges, reflecting the ongoing challenge of establishing a regulatory framework for the rapidly evolving crypto industry. As the lawsuit unfolds, it may have significant implications for how cryptocurrency exchanges operate within the regulatory landscape, impacting both their business practices and the broader regulatory environment for the crypto sector.