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Enforcement

SEC Charges Kraken for Unregistered Securities Operations

The Securities and Exchange Commission (SEC) has taken action against Payward Inc. and Payward Ventures Inc., collectively known as Kraken. The SEC alleges that Kraken operated its crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

Unlawful Activities and Lack of Registration

According to the SEC’s complaint, dating back to at least September 2018, Kraken has unlawfully facilitated the buying and selling of crypto asset securities, generating hundreds of millions of dollars. The SEC contends that Kraken functions as an exchange, broker, dealer, and clearing agency without the required registration with the Commission. This failure to register deprives investors of crucial protections, including SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest.

Alleged Operations of Kraken

The SEC outlines Kraken’s alleged operations on its platform, including:

  1. Exchange Operations: Providing a marketplace for the securities of multiple buyers and sellers, operating as an exchange.

  2. Broker Activities: Effecting securities transactions for the accounts of Kraken customers, thereby functioning as a broker.

  3. Dealer Operations: Buying and selling securities for its own account without an applicable exception, operating as a dealer.

  4. Clearing Agency Services: Acting as an intermediary in settling transactions in crypto asset securities by Kraken customers and serving as a securities depository, thus operating as a clearing agency.

Risks and Deficient Practices

The SEC’s complaint also highlights risks associated with Kraken’s business practices, deficient internal controls, and poor recordkeeping. Allegedly, Kraken commingles customer funds and crypto assets with its own, presenting significant risks of loss to its customers.

Enforcement and Penalties

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the SEC’s stance on holding Kraken accountable for its misconduct. The SEC seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties for Kraken’s alleged violations of the Securities Exchange Act of 1934.

Previous Actions

It’s worth noting that in February of this year, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and pay a civil penalty of $30 million.

SEC Press Release

SEC Complaint

Sallah Astarita & CoxRepresenting Advisors and Investors, Nationwide.
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The Securities Lawyer