The United States Securities and Exchange Commission (SEC) sued Kraken alleging that it commingled client funds and failed to register as a stock exchange, broker, dealer and clearing agency with the regulator.
In a Nov. 20 complaint to a California District Court, the SEC claimed that since 2018 Kraken had operated as a platform that illegally facilitated the buying and selling of cryptocurrencies.
“Without registering with the SEC in any way, Kraken has simultaneously acted as a broker, dealer, exchange, and clearing agency with respect to these cryptoasset securities.”
Additionally, the SEC alleged that Kraken’s business practices and “poor” internal controls caused the exchange to commingle customer assets with its own, which the SEC said resulted in a “significant risk of loss” to Your clients.
The complaint alleged that Kraken had been paying operating expenses directly from accounts containing customer assets.
“We allege that Kraken made a business decision to obtain hundreds of millions of dollars from investors rather than comply with securities laws,” SEC Enforcement Division Director Gurbir Grewal said in a statement. “That decision led to a business model plagued by conflicts of interest that put investor funds at risk.”
In addition to the allegations made against Kraken, the agency also listed a total of 16 cryptocurrencies as securities, including Cardano (ADA), Algorand (ALGO), Polygon (MATIC), and Solana (SOL).
Related: Kraken will share data of 42,000 users with the IRS
The SEC’s complaint alleges that Kraken violated the registration provisions of the Securities Exchange Act of 1934. It requests that Kraken pay fines, injunctive relief, and requests that the exchange return its “ill-gotten gains.”
On February 9, Kraken reached a $30 million settlement with the regulator, in which it agreed to stop offering cryptocurrency products and services to US customers.
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