Kraken, a San Francisco-based cryptocurrency exchange, is under investigation by the United States Securities and Exchange Commission (SEC) for violating securities laws. The investigation, which is reportedly in an advanced stage, could lead to a settlement in the coming days, according to an anonymous source.
Investigation by the SEC
Kraken, which is the fourth largest digital assets exchange by daily volume, allows customers to trade cryptocurrencies like Bitcoin, Ethereum, and Dogecoin. It has declined to comment on the SEC investigation. This is not the first time the exchange has faced allegations from federal authorities. In November, Kraken agreed to pay the US Treasury Department’s Office of Foreign Assets Control $362,158.70 for violating sanctions against Iran.
The SEC has been cracking down on cryptocurrency exchanges, with recent charges against Genesis and Gemini for offering unregistered securities. The SEC Chairman Gary Gensler claims that many cryptocurrencies are unregistered securities and the world of crypto is “significantly non-compliant.” The regulator launched 30 crypto-related enforcement actions in 2022, a 50% increase from the previous year.
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Focus on Compliance
Gensler’s goal for regulating crypto in 2023 is to bring crypto exchanges and lending platforms into compliance, either through registration with the SEC or enforcement actions. Kraken CEO Dave Ripley argued in September that he didn’t see the need to register Kraken as an exchange with the SEC because it doesn’t offer securities. However, Gensler has repeatedly stated that he considers most cryptocurrencies other than Bitcoin to be securities.
The exact offerings being scrutinized by the SEC are not yet known. The SEC has not commented on the investigation. The regulator often uses the “Howey test” to determine what constitutes a security, which holds that a transaction qualifies as an investment contract and therefore a security if there is an investment in a common enterprise with profits earned exclusively through the work of others.
