SEC Investigating Crypto Exchange Kraken over Unregistered Securities

US-based cryptocurrency exchange Kraken has gotten into hot water for possible violation of offering unregistered securities. Currently, the US Securities and Exchange Commission (SEC) is investigating whether Kraken was trading certain tokens without complying with the existing policy. It is not clear which token offerings are under scrutiny, but according to those familiar with the matter, the investigation is at an “advanced stage”, and the settlement might be achieved in the upcoming few days.

Neither SEC nor Kraken provided comments on the alleged probe.

For Kraken, which is the world’s third-largest cryptocurrency exchange with a daily trading volume of over $600 million, this is not the first time of being suspected for violations. The United States has been upholding economic sanctions against Iran since 1979, meaning that US-based businesses can not buy or sell goods to anyone in the country. However, Kraken violated the sanctions. According to the US Department of the Treasury’s Office of Foreign Asset Control (OFAC), Kraken processed 826 transactions, totaling approximately $1.68 million, between October 2015 and June 2019 for individuals located in Iran. Since 2019, The Treasury Department’s Office of Foreign Assets Control has been investigating Kraken. In November 2022, the exchange agreed to pay $362,158.70 in fines for apparent violations of sanctions against Iran.

In 2021, the US Commodity Futures Trading Commission (CFTC) charged Kraken with a $1.25 million fine for listing “illegal off-exchange digital asset trading and failing to register as required.”

Exchanges Under Scrutiny

Since the collapse of FTX exchange, the SEC has been tough on other companies offering platforms for crypto trading, including Kraken. Among the latest companies to fall under scrutiny are the crypto exchange Gemini and crypto lender Genesis for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program. The latter has recently filed for Chapter 11 bankruptcy protection in the United States and seeks the court’s protection amid its failure to meet its personal obligations. Notably, its credits and liabilities fall within the range of $1 billion and $10 billion respectively, and the compay has as many as 100,000 creditors.

According to the SEC’s Chairman Gary Gensler, many cryptocurrencies are unregistered securities. Securities are considered to pose higher risks because they are not subject to the same level of regulatory oversight as other financial tools. Even though Kraken CEO Dave Ripley does not consider it necessary to register with the SEC, Gary Gensler calls for crypto platforms to do so.

Dave Ripley said:

“There are not any tokens out there that are securities that we’re interested in listing,” he said. “There could be some new token out there that becomes interesting and also happens to simultaneously be a security [and] in that case, we would potentially be interested in that path.”

According to Gensler, the crypto industry is “significantly non-compliant” with the rules that already exist, and more needs to be done to protect investors.