The SEC filed charges against Payward Inc. and Payward Ventures Inc. – which are together known as Kraken – alleging that, through its platform’s services, Kraken:
- provides a marketplace that brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact, and thus operates as an exchange;
- engages in the business of effecting securities transactions for the accounts of Kraken customers, and thus operates as a broker;
- engages in the business of buying and selling securities for its own account without an applicable exception, and thus operates as a dealer; and
- serves as an intermediary in settling transactions in crypto asset securities by Kraken customers, and acts as a securities depository, and thus operates as a clearing agency.
Kraken responded on X, saying: “Today, the SEC filed a complaint alleging that Kraken operates as an unregistered national securities exchange, broker, and clearing house. We disagree with their claims and plan to vigorously defend our position … The SEC has repeatedly challenged crypto exchanges to come in and register without a single law supporting their position and no clear path to registration.”
Conflicts of interest
But Gurbir S Grewal, Director of the SEC’s Division of Enforcement, said: “We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk.
“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”
Kraken claims the law is on its side, referencing the July case against Ripple Labs. “Nonpartisan Congressional action is the most effective path forward to avoid the US litigating its way to the back of the line as crypto rulemaking advances around the world,” it added.