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Legal

Expert Explains Why SEC Sued Crypto Exchange Kraken

Attorney Deaton explains why the United States Securities and Exchange Commission (SEC) charged Kraken with operating an unregistered exchange.

The U.S. SEC has filed a fresh lawsuit against Kraken, alleging that the crypto trading platform operated an unregistered exchange, broker, and clearing agency.

SEC Allegations Against Kraken

According to a November 20 filing, the SEC claimed Kraken failed to register with the regulator despite unlawfully facilitating the buying and selling of crypto assets since 2018.

In the complaint, the Securities and Exchange Commission listed 16 crypto assets it considers securities, including ADA, MATIC, NEAR, ALGO, and SOL.

The development marks the SEC’s latest move, under the leadership of its chair Gary Gensler, to bring the emerging assets under its regulatory purview. The Gensler-led SEC considers all crypto assets, other than Bitcoin, as securities.

Based on this assertion, the regulator has filed multiple lawsuits against US-based crypto exchange businesses, including Coinbase and Binance.

The SEC’s lawsuits against Binance and Coinbase are similar to Kraken’s in certain ways, especially its claim that they all operated as unregistered securities exchanges.

Kraken Commingled Customers’ Assets

However, the SEC’s recent allegation against Kraken took a different twist. Citing Kraken’s independent audit report, the SEC alleged that Kraken exposed its clients to significant risks by commingling customers’ assets of up to $33 billion with its own corporate assets.

Per the SEC, Kraken sometimes paid its legitimate business expenses from the same bank account it also holds customers’ assets.

Kraken Denies Allegation, Pledges to Defend Itself

Reacting to the development, Kraken CEO Dave Ripley said the exchange disagrees with the SEC’s claim, asserting that the firm will vigorously defend its position.

“Its [SEC’s] allegations are factually incorrect, contrary to law, and the wrong way to create policy in the United States. As an industry leader, we will stand up to these allegations and defend the crypto industry’s right to exist in the U.S.,” Ripley added.

Furthermore, Kraken published a blog post indicating its position in the SEC’s latest lawsuit. The development comes months after Kraken paid $30 million to settle SEC charges tied to its staking service.

Pro-XRP Explains Why SEC Sued Kraken

As expected, the SEC’s latest suit against Kraken has stirred reactions among crypto enthusiasts, with top stakeholders speculating on the rationale behind the legal tussle.

Prominent legal expert John Deaton suggested that the securities regulator is worried about the motion filed by Coinbase to dismiss its charges. He pointed out that while the Coinbase suit is in the District Court of the Southern District of New York (SDNY), the SEC sued Kraken in the Northern District of California.

Deaton has previously argued that the Coinbase motion to dismiss the SEC’s claim has “bone to it,” suggesting that the San Francisco-based exchange has a better chance of winning the lawsuit.

Make no mistake about it:

THE @SECGov is worried about the @coinbase MTD pending in the SDNY. This case is filed in the Northern District of California. https://t.co/Wo8LZYIKfj

— John E Deaton (@JohnEDeaton1) November 21, 2023

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