The U.S. Financial Markets Regulatory Authority (SEC) on Monday summoned Kraken, the world’s third-largest cryptocurrency exchange platform, to federal court, accusing it of operating without authorization from regulators.
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This legal action appears to be a repudiation for the many players in the industry who saw the SEC (Securities and Exchange Commission) ease the crackdown, following a series of unfavorable legal decisions.
In June, the regulator had already cracked down on Binance, the world’s leading exchange, and its runner-up Coinbase.
The proceedings, which began Monday in federal court in San Francisco, target Payward and Payward Ventures, the two legal entities behind Kraken.
According to the SEC, the site, which recently celebrated its tenth anniversary, provides brokerage and clearing services “without having registered for any of these functions with the Commission.”
This lack of registration “deprived investors of significant protection,” which, according to the regulator, would have been allowed by SEC inspections, market data retention and conflict-of-interest provisions, provided by the texts .
Authorities also accuse Kraken of commingling its own funds with those of its customers, and notably paying operating expenses with money taken from the platform’s user deposits.
According to the SEC, the companies’ auditor reported a “substantial risk of loss” to clients as a result of these practices.
For the SEC, Kraken’s business model is “plagued with conflicts of interest that put investors’ funds at risk,” Gurbir Grewal, director of the enforcement division, argued in the SEC’s filing.
In a reaction posted on its site, the platform claims that the SEC’s position is a misinterpretation of the texts and that it should not be registered with the regulator.
“These developments have no impact on the products we offer and we will continue to offer our services to our customers without interruption,” Kraken added.
The cryptocurrency world had recently returned to color, with observers anticipating the SEC’s green light to the commercialization of a new cryptocurrency investment product.
These are ETFs, or index funds, invested in bitcoins that savers could buy or sell at any time without having to go through a cryptocurrency exchange platform, potentially democratizing digital currency investing.
Hopes for a softening of the SEC’s stance were largely based on two legal setbacks in October that undermined the regulator’s desire to establish itself as the go-to authority on cryptocurrencies.