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The Commodity Futures Trading Commission (CFTC) has charged Kraken, a prominent cryptocurrency exchange $1.25 million on stop-trade orders. The charges were filed as civil financial penalties for allegedly violating the Commodities Exchange Act by Payward Ventures Inc. (Kraken's owner).
The CFTC Charge Kraken $1.25 Million For The Alleged Illegal Offering
According to the CFTC, Kraken failed to comply with its obligations as a futures commission merchant and service provider, and as a result, it illegally provided margined retail commodities transactions in digital assets to U.S. clients who were not qualified for the financial instruments.
The CFTC has determined that this conduct occurred between June 2020 and July 2021.
Kraken must register as a Designated Contract Market (DCM) or Futures Contract Market (FCM) for futures products for the offers to be acceptable.
Offering requires DCM status, whereas listing and trading on the open market need FCM registration.
“How Kraken would be regulated as an FCM is not entirely clear, because many of the Commission’s rules governing its regulation of traditional FCMs do not fit Kraken’s role as an exchange,” said CFTC Commissioner Dawn Stump.
Kraken Voluntarily Surrendered Its Rights To Any Future Hearings Or Court Review
In response to the allegations, Kraken made the following statement:
“We appreciate that today’s settlement acknowledges our cooperation and engagement on the issue. We are committed to working with regulators to try to ensure the rules governing digital assets create a level playing field globally – one that allows the crypto space in the U.S. to flourish while protecting the interests of individuals and the integrity of the industry.”
Despite this nudge to comply, Kraken neither confirmed nor disputed that the CFTC's conclusions were true, but it has subsequently cooperated with the cease and desist order to avoid additional breaches of the Commodities Exchange Act.
In addition, the exchange has renounced its rights to any hearings or future court review per the allegations.
The CFTC released a concurring comment about the settlement, emphasizing how existing agency advice from its end cannot now completely clarify laws for cryptocurrency businesses seeking to facilitate retail commodities transactions, particularly those related to liquid digital assets.
“This motion is a part of the CFTC’s broader effort to offer protection to U.S. shoppers. Margined, leveraged or financed virtual asset buying, and selling introduced to retail U.S. shoppers should happen on correctly registered and controlled exchanges in response to all appropriate regulations and rules,” stated Vincent McGonagle, director of enforcement at the CFTC.
With this unprecedented case, Kraken hopes to “proactively” lead the discussion on this matter for the benefit of the “U.S. digital asset industry and U.S. investors writ large,” which will have an impact on the crypto industry as well, given Kraken's position as a leading crypto exchange valued at over $10 billion, which will lay the groundwork for clearer regulatory frameworks for offerings of this type.