SEC Ramps Up its Enforcement Actions and Launches Probe Into Kraken

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The SEC is investigating Kraken, a San Francisco-based cryptocurrency exchange for violating its securities laws.
Kraken is a crypto exchange that allows customers to buy and sell cryptocurrencies like Bitcoin, Ethereum, and Dogecoin.

The Securities and Exchange Commission (SEC) is investigating Kraken, a San Francisco-based cryptocurrency exchange for violating its securities laws. As per a Bloomberg report, the probe is in an advanced stage and could result in a settlement in the near future.

Speaking to Reuters in September last year, the exchange’s incoming Chief Executive Officer Dave Ripley said that the exchange had no plans to delist any coins or tokens the SEC had labeled as securities or register with the SEC as a market intermediary.

This isn’t the first time the centralized crypto exchange has faced allegations from lawmakers. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) opened an investigation into Kraken for allegedly violating economic sanctions against Iran last year in November.

After an in-depth investigation, it was confirmed that the crypto exchange allowed customers in Iran and other sanctioned countries to use its platform. In conclusion, Kraken agreed to pay a $362,158.70 fine for apparent violations of sanctions against Iran.

"Basically this is just the @SECGov trying to swing their dick around and saying: "We're looking into you". Means nothing, of course they are. They are looking into everyone" @krakenfx pic.twitter.com/ZzGrEV0xkh

— SpillnCryptoTea 🫖 (@SpillnCryptoTea) February 9, 2023

Last year, the Commodity Futures Trading Commission (CFTC) ordered Kraken to pay $1.25 million in penalties for “illegally offering margined retail commodity transactions in digital assets,” including Bitcoin (BTC), and failing to register as a futures commission merchant.

As a part of the settlement, Kraken will invest an additional $100,000 in sanction compliance controls.

Just last month, the regulator took action against both Genesis and Gemini for allegedly providing unregistered securities.

The SEC’s primary theory on whether a crypto asset is a security appears to be based upon whether the blockchain project associated with a crypto asset is, at any point in time, “sufficiently decentralized.”If so, the crypto asset is not a security.

But the theory has not aged well. It is impractical—if not impossible—to apply to today’s real-life blockchain projects. It is not supported by existing judicial precedent, including the now crypto-famous Howey Supreme Court case. And it has resulted in market distortions that harm both market participants and long-term innovation in the crypto industry.