US-based cryptocurrency exchange Kraken is facing legal action from the Securities and Exchange Commission (SEC) following allegations of operating an online trading platform without proper registration with the institution.
It is reported that the claim of the SEC against Kraken focused on their work with an unregistered online cryptocurrency trading platform. The commission alleges that since 2013, Kraken has facilitated the purchase and sale of cryptoassets, many of which are considered investment contracts under US securities laws.
The SEC alleged that Kraken acted as a broker, dealer, exchange and clearinghouse for these securities without complying with SEC registration requirements. As a result, Kraken has amassed significant fees and trading revenue, circumventing regulations designed to protect investors.
The lawsuit also highlights Kraken’s risky business practices, including inadequate internal controls and record keeping. Kraken is noted to have commingled over $33 billion worth of customer cryptoassets with its own, creating significant risk for customers.
In addition, the SEC alleges that Kraken held more than $5 billion in customer funds, sometimes commingling them with its own funds and using them for operating expenses.
The SEC’s legal position is based on the Securities Exchange Act of 1934, designed to oversee the nation’s securities markets. They claim that Kraken’s activities fall within the scope of US securities laws due to the offering and sale of crypto-assets on their platform resembling investment contracts.