The Securities and Exchange Commission (SEC) sued Kraken on Monday evening, accusing one of the world’s largest cryptocurrency exchanges of illegally operating as a securities exchange without first registering with the regulator.
“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,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement.
The latest move by SEC Chair Gary Gensler to crack down on crypto has drawn criticisms from the industry and some of its biggest advocates and renewed calls for Congress to provide clarity on the regulation of digital assets.
In a blog post following the lawsuit, Kraken denied it deals in securities, saying the SEC is “demanding compliance with a regime that doesn’t exist.”
“We strongly disagree with the SEC claims, stand firm in our view that we do not list securities, and plan to vigorously defend our position,” Kraken CEO Dave Ripley wrote on X, formerly known as Twitter.
The SEC filed similar lawsuits against Binance, the largest global crypto exchange, and Coinbase, the largest U.S. crypto exchange, in June. Both trading platforms are fighting the allegations.
“We’re disappointed to see the SEC engage in another example of clear overreach by filing an action against Kraken,” Marisa Tashman Coppel, senior counsel at the Blockchain Association, said in a statement.
“The SEC’s action underscores the need for our elected representatives — not overzealous regulators — to establish regulatory clarity for the digital asset industry.”
House committees advanced the Financial Innovation and Technology (FIT) for the 21st Act over the summer, but Congress has yet to pass a comprehensive framework laying out the rules of the road for the industry.
“The SEC cannot continue ruling by enforcement,” Sen. Cynthia Lummis (R-Wyo.) said on X.
Lummis and Sen. Kirsten Gillibrand (D-N.Y.) reintroduced their crypto bill, the Lummis-Gillibrand Responsible Financial Innovation Act, this summer.
Kraken and Coinbase both voiced support for a previous version of the bill, which lays out a comprehensive framework for regulating crypto assets.
Both exchanges are in the top five industry spenders on federal lobbying, which has ballooned from $2.5 million in 2020 to $8.5 million amid the bull market in 2021 to $22.2 million in 2022, according to a new analysis by CoinGecko of OpenSecrets lobbying data.
The crypto industry has already spent more than $20 million on federal lobbying in the first nine months of 2023, putting the industry on track for a record lobbying year. That’s approximately 19.7 percent of the $102.6 million Wall Street has spent on federal lobbying so far this year, the CoinGecko analysis found.
In her statement on X, Lummis called on Congress to pass “a regulatory framework to provide clear rules to the SEC.”
In the meantime, the SEC shows no signs of stopping its crusade to rein in the crypto industry.
“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,” Grewal said.