SEC Registers New Case Against Kraken: 3 Accusations Follow

SEC Registers New Case Against Kraken: 3 Accusations Follow
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Key Takeaways:

  • SEC accuses Kraken for acting as unregistered exchange, unregistered broker and dealer and unregistered clearing agency.
  • The same accusations were also levied against Binance and Coinbase earlier.
  • Legal battle seems the only way to check if the SEC's has authority.

In a latest series of cases registered against crypto companies, the SEC has leveled charges against the crypto exchange, Kraken. It was charged with the sales of unregistered securities, acting as an unregistered broker and dealer, and acted as a clearing agency.

These were the same charges leveled against multiple other agencies including Binance, Coinbase, Celsius, Coinme Inc and several others.

The regulatory body has repeatedly filed cases against crypto focused companies despite several court decisions in which it has lost. Further, this relentless pursuit has also been criticized by the US Congressional hearings and Congress Senators.

Same Old Allegations Against Kraken

Kraken Logo
Kraken Logo

The SEC's charges against Kraken have been quite similar to its charges against other exchanges and token issuers. These accusations against Kraken that it acted as an unregistered securities exchange, that Kraken involved itself in brokering and dealing unregistered securities and the final charge is that it acted as a clearing agency.

Let's explore them one by one.

1. Unregistered Securities Exchange

An exchange in the US is one which facilitates the aggregation of buyers and sellers by providing them a platform, rules and regulations to make any trade.

Since the SEC does not consider Kraken or any other cryptocurrency exchange as legal, this has been a repeated charge against all exchanges by the SEC.

2. Brokering

Brokering is the act of finding a customer for any sales. The SEC considers Kraken in violation of brokers' rule because it finds customers for its sellers and vice versa.

3.Dealing

Dealing is the method of facilitating a transaction between a mutually chosen customer and a seller. For the Dealing part, since Kraken buys and sells crypto for itself from the exchange, the SEC therefore , considers it a dealer.

4. Acting as a Clearing Agency

A clearing agency is the one which settles transactions between buyers and sellers.

A depository is one which holds the assets of its customers. In Kraken, akin to any other exchange, there is a wallet to store crypto.

Since it does both of them as a part of its exchange, therefore, the SEC considers the rule to be violated.

No Lesson From Past Cases by The SEC

In the past the SEC has lost several cases against the entities it sought to regulate. The most prominent of them was Grayscale's application to allow the conversion of the Trust into a Bitcoin ETF.

#Note: In the USA, ETFs are sold as the shares of a "Trust" which holds the real asset with itself.

Finally, Grayscale won against the regulator.

Another instance was the historic landmark in which US District Court of Southern New York ruled that the public sales of XRP did not qualify the Howey Test and could not be regarded as securities. There is an institutional part involved.

The case of Ripple vs SEC took about two years and seven months from December 2020 to July 2023 and costed Ripple more than $200 million dollar in expenses. Grayscale too spent a fortune and a year and nine months fighting the case from November 2021 to August 2023.

The SEC might be one of the most well funded regulators in the world, but crypto companies which are now going through a rough phase, might not even be adequately funded. Long drawn cases might permanently disrupt their business.

Finally, the SEC seems to be determined for this case as there has been no cryptocurrency exchange which has won against the SEC yet. The court proceedings of Binance and Coinbase are already in motion and it is expected to take a good amount of time before conclusion.

A set of well defined laws, even if they are strict like MiCA in Europe would provide some certainty for crypto businesses in the USA. Till then, it seems to be the SEC against every other company.

Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

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