SEC sues cryptocurrency firm Kraken for allegedly operating as unregistered exchange

The Securities and Exchange Commission this week announced a lawsuit against cryptocurrency giant Kraken for allegedly operating as an unregistered securities exchange.

The complaint against the firm alleges that since 2018, Kraken has unlawfully facilitated the trading of crypto assets, raking in hundreds of millions of dollars. The company, the SEC alleges "intertwines the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law."

"We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws. That decision resulted in a business model rife with conflicts of interest that placed investors' funds at risk. Kraken's choice of unlawful profits over investor protection is one we see far too often in this space, and today we're both holding Kraken accountable for its misconduct and sending a message to others to come into compliance," SEC Division of Enforcement Director Gurbir Grewal said in a press release.

Beyond the registration concern, the SEC contends that Kraken lacks effective internal controls and recordkeeping.

The suit comes in the wake of the collapse of FTX and heightened scrutiny of cryptocurrency firms. FTX Founder Sam Bankman-Fried in November was found guilty on two counts of conspiracy and five counts of fraud related to the company's collapse.

The late 2022 implosion of the firm led to the appointment of an interim CEO, John J. Ray III, who later told Congress that the company lacked almost any internal records at all.

"The issue here I was speaking to is I've never seen an utter lack of record keeping, absolutely no internal controls whatsoever," he said. "It's one of the worst from a documentation standpoint. Even in the most failed companies you have a fair roadmap of what happened. We're dealing with literally, sort of a paperless bankruptcy, in terms of how they created the company."

Ben Whedon is an editor and reporter for Just the News. Follow him on X, formerly Twitter.