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The US Securities and Exchange Commission (SEC) has filed a lawsuit against Kraken, one of the world’s largest cryptocurrency exchanges. The SEC alleges that Kraken has been operating as a securities exchange without proper registration. This development has made waves in the cryptocurrency world. It is also noteworthy that this happened shortly after the alleged agreement between Binance and the US Department of Justice.
Kraken’s Stance and Defense
Kraken, headquartered in San Francisco, plans to vigorously defend itself by arguing that cryptocurrency exchange regulations should be determined by Congress. The exchange challenges the SEC’s perspective on cryptocurrencies. It considers this situation as “wrong as a legal matter and disastrous as a policy matter.” Kraken emphasizes that the lawsuit will not affect its broad user base of over 10 million customers.
The SEC accuses Payward Inc. and Payward Ventures Inc., operating as Kraken since 2018, of facilitating crypto transactions without complying with securities laws in the lawsuit it has filed. It also alleges that Kraken has disregarded internal controls, inadequate record-keeping practices, and investor protection measures. In particular, the accusation includes the commingling of customer funds with the exchange’s own funds. According to the SEC’s claim, this situation raises concerns about conflicts of interest and the safety of investor funds.
Impact on the Industry and the Legal Framework
This legal action is in line with SEC Chairman Gary Gensler’s efforts to bring the cryptocurrency sector into a legal framework. It shares a common theme with previous lawsuits filed against major exchanges such as Binance and Coinbase. The SEC aims to ensure the applicability of federal securities laws to digital assets and create a potential turning point for the industry.
Kraken’s statement emphasizes that the SEC’s allegations are baseless. According to Kraken, any alleged “commingling” of funds only involves the use of earned fees. The SEC is seeking a comprehensive resolution, including monetary penalties, restitution of gains, and injunctive relief, against Kraken’s unregistered exchange activities. While the legal battle continues, the outcome can significantly impact the legal framework for cryptocurrency exchanges. Kraken’s challenge sets the stage for a more detailed discourse on the authority of regulatory agencies in shaping the future of cryptocurrency markets.
