On November 20, the SEC filed a lawsuit in the federal district court of San Francisco against Payward Inc. and Payward Ventures Inc., collectively operating as Kraken. The regulator alleges that since September 2018, Kraken has unlawfully facilitated the buying and selling of crypto assets that qualify as unregistered securities, earning hundreds of millions of dollars in the process. The SEC also accuses Kraken of operating as an exchange, broker, dealer, and clearing agency without proper registration, as required by law. This lack of registration deprived investors of safeguards in the event of potential financial losses, the agency stated.
Another claim by the SEC is that Kraken commingles client funds with its own assets and uses client accounts to cover operational expenses. Gurbir S. Grewal, the head of the SEC’s enforcement division, expressed concern that the mingling of client funds poses a significant risk of losses for users. The SEC official stated that Kraken prioritizes profit over investor protection, leading to a business model with potential conflicts of interest and risks for investors. The SEC has sought a court order to enjoin Kraken’s activities, the forfeiture of unlawfully obtained funds, and the imposition of fines
