SEC Charges Kraken for Unregistered Securities Operations
The Securities and Exchange Commission (SEC) has made headlines by charging Payward Inc. and Payward Ventures Inc., collectively known as Kraken, for purportedly operating as an unregistered securities exchange, broker, dealer, and clearing agency. This move by the SEC, under the purview of the 1934 Securities Exchange Act, alleges violations and seeks remedies that include injunctions, disgorgement of gains with interest, and penalties.
The SEC’s complaint contends that since September 2018, Kraken has been unlawfully facilitating the buying and selling of crypto asset securities, resulting in substantial profits. It accuses Kraken of intertwining multiple traditional financial services without the necessary registration, thereby depriving investors of essential protections mandated by law, such as SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest.
According to the complaint, Kraken’s alleged failure to register these functions has led to severe risks for its customers. The SEC claims that the company commingled customer funds with its own and mingled customer crypto assets with its holdings, leading to potential risks of financial loss for its clientele.
Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, emphasized, “Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space.” The SEC’s legal action seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties.
In response, Dave Ripley, CEO of Kraken, vehemently opposed the SEC’s claims via Twitter, stating, “We strongly disagree with the SEC claims, stand firm in our view that we do not list securities, and plan to vigorously defend our position.” Ripley highlighted the lack of a clear path to registration and criticized the SEC’s approach as factually incorrect, contrary to law, and inadequate for creating policy in the United States.
We strongly disagree with the SEC claims, stand firm in our view that we do not list securities, and plan to vigorously defend our position.
As we have seen before, the SEC argues that @krakenfx should “come in and register” with the agency, when there is no clear path to…
— Dave Ripley (@DavidLRipley) November 21, 2023
Kraken’s stance, supported by the crypto industry’s desire for regulatory clarity, advocates for congressional action to address the existing lack of regulatory frameworks in the United States. The company asserts its commitment to standing against the SEC’s allegations and defending the industry’s right to operate within the country.
The dispute between Kraken and the SEC not only underscores the complexities surrounding regulatory oversight in the burgeoning crypto space but also raises fundamental questions about the legal boundaries and obligations of crypto platforms operating in the US.
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