Kraken charged by the sec.

for Operating as an Unregistered Securities Exchange, Broker, Dealer, and Clearing Agency

The Securities and Exchange Commission (SEC) has recently charged Payward Inc. and Payward Ventures Inc., collectively known as Kraken, for operating a crypto trading platform without proper registration.

Since September 2018, Kraken has been accused of generating substantial revenue by unlawfully facilitating the trade of crypto asset securities. The SEC asserts that Kraken combined the functions of an exchange, broker, dealer, and clearing agency without registering these services as mandated by law. This non-compliance deprived investors of critical protections such as SEC inspections, recordkeeping standards, and safeguards against conflicts of interest.

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Kraken's platform allegedly offered a marketplace that paired multiple buyers' and sellers' orders for securities, functioning effectively as an exchange. It is also accused of acting as a broker by handling securities transactions for customer accounts and as a dealer by trading securities for its account without exemptions. Moreover, Kraken supposedly served as an intermediary in settling transactions in crypto asset securities and acted as a securities depository, thereby operating as a clearing agency.

The SEC's complaint highlights Kraken's inadequate internal controls and poor recordkeeping practices, posing various risks to its customers. Kraken allegedly mingled its customers' funds with its own, including using customer accounts to cover operational expenses. This practice, along with the commingling of customers' crypto assets with its own, was flagged by Kraken's auditor as a significant loss risk for customers.

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Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented on the case, stating, "We allege that Kraken chose to prioritize unlawful profits over compliance with securities laws, resulting in a business model fraught with conflicts of interest and risks to investors' funds." He emphasized that Kraken's decision is a common issue in the crypto space. He reiterated the SEC's commitment to holding Kraken accountable while urging others to comply with the law.

The complaint, filed in a federal district court in San Francisco, alleges that Kraken violated registration provisions of the Securities Exchange Act of 1934. The SEC seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains, interest, and penalties. Earlier this year, Kraken had agreed to stop offering or selling securities through crypto asset staking services or programs and to pay a civil fine of $30 million.

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Private companies carry inherent risks and may not be suitable for all investors. The information provided in this article is for informational purposes only and should not be construed as investment advice. Always conduct thorough research and seek professional financial guidance before making investment decisions.