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As stated by the SEC’s legal complaint, “Kraken’s business practices, deficient internal controls, and inadequate recordkeeping present a range of additional risks that would also be prohibited for any properly registered securities intermediary.“
Months after suing Binance and Coinbase, the US Securities and Exchange Commission has filed a similar lawsuit against Kraken on charges of operating an unregistered exchange.
In the court filing, the SEC accused Kraken of violating security laws by offering crypto services to US residents without registering with the regulatory agency. The SEC targeted Kraken’s recordkeeping practices, citing the San Francisco-based exchange has frequently commingled over $33B worth of customer assets with its corporate holdings.
The regulatory agency also cited that at times, Kraken had accessed bank accounts with customer assets to pay operational expenses. Finally, it also drew attention to the fact that an independent auditor had discovered material errors in Kraken’s financial statements for 2020 and 2021.
USA's top decel is back with another assault on America. The masochists haven't been happy with the beatings they've been taking in NY and are shopping for a different flavor of RegDom in CA. I thought we settled all their concerns for $30m in Feb. Now they're back for seconds? https://t.co/SkfPJyneUz
— Jesse Powell (@jespow) November 21, 2023
In response, the Kraken called the SEC’s lawsuit “disastrous.” Referring to Ripple’s (XRP) recent victory against the SEC, Kraken argued the accusations against the exchange are baseless, and assured the community that the regulator's complaint will not have any effect on the exchange’s offerings. It added,
“There is no such thing as an exchange, broker dealer, or clearing agency for investment contracts. The SEC is demanding compliance with a regime that doesn’t exist.”