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Kraken Under SEC Scanner For Conducting Transactions in Unregistered Securities

The crypto exchange is in trouble after being accused of possibly violating federal law by trading unregistered securities.

Photo by Omid Armin / Unsplash

The crypto currency exchange Kraken, situated in the United States, is in trouble after being accused of possibly violating federal law by marketing unregistered securities. The SEC is looking into whether or not Kraken was trading particular tokens in a manner that did not conform with the policy in place.

It is not apparent whose token offers are under investigation; however, according to people acquainted with the situation, the inquiry is at an "advanced level," and the settlement may be reached in the next few days at the latest.

This isn't the first time Kraken, the world's third-largest crypto exchange with a daily trading volume of over $600 million, has been accused of violating regulations.

US has Sanctioned Iran since 1979. This means that firms in the United States are not permitted to acquire or sell goods to any individual or entity within the country. Despite this, Kraken was found to have breached the sanctions.

Between October 2015 and June 2019, the Office of Foreign Asset Control (OFAC) of the United States Department of the Treasury reported that Kraken handled 826 transactions for Iranian persons with a total value of about $1.68 million.  

Since 2019, the Office of Foreign Assets Control within the Treasury Department has been investigating Kraken. The exchange reached an agreement in November 2022 to pay a total of 362,158.70 rials in fines for alleged violations of sanctions imposed against Iran.

In 2021, the US Commodity Futures Trading Commission (CFTC) levied a fine against Kraken of $1.25 million for listing "illegal off-exchange digital asset buying and selling and not registering as required."

SEC's Hard Stance on Crypto Exchanges

Since the FTX exchange was shut down, the SEC has been taking a hard stance against other firms that offer platforms for trading crypto currencies, like Kraken.

Gemini, a crypto  exchange, and Genesis, a crypto lender, are two of the most recent companies to come under scrutiny for the unregistered offer and sale of securities to investors via the Gemini Earn program. Both companies are being investigated for their role in the practice.

The latter has just submitted a petition for protection under Chapter 11 of the US Bankruptcy Code, and it is seeking the safety of the court due to its inability to satisfy its commitments.

The company has as many as 100,000 customers that owe it money, and its total assets and liabilities are estimated to be in the region of $1 billion and $10 billion, respectively.

Gary Gensler, the chai of the SEC, believes that many crypto currencies might be classified as unregistered securities. Because securities are not subject to the same amount of regulatory monitoring as other financial instruments, they are seen as having a bigger potential for loss than these different tools.

Gary Gensler has advocated for the registration of crypto currency platforms, even though the CEO of Kraken, Dave Ripley, does not believe such registration is required.

He stated that there are now no tokens that qualify as securities and that they are not interested in listing any of such tokens.

"There may be some new token that is released that ends up being attractive and also happens to be a security at the same time," and if that were the case, "in that scenario, we would possibly be interested in that road."

The crypto currency sector is "substantially non-compliant" with the standards that are currently in place, as stated by Gensler; hence, more steps are required to ensure the safety of investors.