© Reuters. Kraken cryptocurrency exchange logo is seen in this illustration taken July 28, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Jonathan Stempel
(Reuters) -Kraken, one of the world’s largest cryptocurrency exchanges, was sued on Monday by the U.S. Securities and Exchange Commission, which accused it of illegally operating as a securities exchange without first registering with the regulator.
The lawsuit in San Francisco federal court is the latest step in SEC Chair Gary Gensler’s push to bring cryptocurrency under his agency’s purview, by contending that crypto assets are investment contracts subject to federal securities laws.
Kraken did not immediately respond to requests for comment.
In June, the SEC filed similar lawsuits against Binance, the world’s largest cryptocurrency exchange, and Coinbase (NASDAQ:), the largest in the United States. Both are defending against the regulator’s claims.
The SEC said Payward Inc and Payward Ventures Inc, which operate as Kraken, have since 2018 made hundreds of millions of dollars arranging crypto purchases and sales while turning a “blind eye” to securities laws designed to protect investors.
Kraken was also accused of having deficient internal controls and inadequate recordkeeping, reflected in part in its commingling customer money with its own and paying operating costs directly from customer accounts.
Failing to register has “resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” SEC enforcement chief Gurbir Grewal said in a statement. “Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space.”
The SEC also accused Binance of commingling customer funds, following a Reuters report describing such conduct. Binance has denied the accusation.
Monday’s lawsuit seeks a civil fine, disgorgement of ill-gotten gains, and a halt to acting as a crypto exchange without registering.
Founded in 2011, San Francisco-based Kraken serves more than 9 million traders and institutional clients, according to its website.
The exchange is backed by investors including Blockchain Capital, Digital Currency Group, Hummingbird Ventures, SkyBridge and Tribe Capital.
The case is SEC v Payward Inc et al, U.S. District Court, Northern District of California, No. 23-06003.
