On the morning of November 21st, the SEC filed a lawsuit against the cryptocurrency exchange Kraken for violating federal securities laws in the Northern District of California.
In the lawsuit, the SEC alleges that Kraken has been operating as an online broker, trader, exchange, and payment agency for cryptocurrency securities without registering with the SEC in any form. As a result, Kraken has exposed investors to risks and has generated billions of dollars in fees and trading revenue without complying with U.S. securities laws aimed at protecting investors.
Furthermore, the SEC accuses Kraken of commingling customer deposits with its own assets. “Kraken sometimes holds over $33 billion of customer crypto and commingles them with its own assets, resulting in significant losses for their customers,” states the SEC lawsuit.
Notably, in the lawsuit, the SEC lists 16 tokens that they consider to be securities, including ADA, AXS, ALGO, ATOM, CHZ, COTI, DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SOL. Similar to the cases involving Binance and Coinbase, the SEC continues to view these coins as securities, and their stance remains unchanged.
With these allegations, the SEC seeks a permanent injunction from the court, forcing the defendants to comply with securities laws and requiring the return of lost funds. Additionally, the commission aims to “disgore” Kraken’s role as an exchange, broker, agent, as well as its clearing agency.
In addition to Kraken, Bittrex has faced a similar fate, closing its exchange after filing for bankruptcy for its U.S. subsidiary, despite agreeing to pay a $29 million civil penalty. Bittrex has recommended users to withdraw their funds by December 4, 2023.
Looking at the current situation, it is evident how the tough legal and economic environment is impacting the cryptocurrency industry. However, this also raises significant questions about the suitability and feasibility of the crypto regulatory framework in the United States.