Kraken, one of the world’s largest cryptocurrency exchanges, was sued on Monday by the U.S. Securities and Exchange Commission (SEC) for allegedly operating illegally as a securities exchange without registering with the regulator. The SEC’s lawsuit, brought in San Francisco federal court, is part of Chairman Gary Gensler’s plan to bring cryptocurrency assets under his agency’s purview by asserting that they are investment contracts subject to federal securities laws.
Payward Inc and Payward Ventures Inc, which operate as Kraken, have, since 2018, made hundreds of millions of dollars in transactions while disregarding securities laws designed to protect investors, according to the SEC. The regulator also claims that Kraken has insufficient internal controls and inadequate recordkeeping, and has commingled customer money with its own and used customer accounts to pay for operating costs.
The SEC is seeking a civil fine, restitution of ill-gotten gains, and an end to Kraken’s unregistered exchange activities. Kraken did not respond to requests for comment on the lawsuit.
The SEC has also filed similar lawsuits against the world’s largest crypto exchange, Binance, and Coinbase, the largest in the U.S. Both are defending against the regulator’s claims. Reuters reported on Binance allegedly commingling customer funds, which the exchange has denied.
Founded in 2011, San Francisco-based Kraken serves more than 9 million traders and institutional clients, according to its website. The exchange is backed by high-profile investors such as Blockchain Capital, Digital Currency Group, Hummingbird Ventures, SkyBridge, and Tribe Capital.
The SEC lawsuit is called SEC v Payward Inc et al, U.S. District Court, Northern District of California, No. 23-06003. Reporting by Jonathan Stempel in New York, with additional reporting by Chris Prentice and editing by David Gregorio and Stephen Coates, our standards are guided by the Thomson Reuters Trust Principles.