According to sources from Reuters, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Payward Inc., generally referred to as “Kranken.”
Kraken is alleged to administer an online trading platform allowing users to sell and buy crypto since 2013, with multiple assets based on investment contracts under U.S. securities laws.
As per the court document, Kraken engaged in brokering, dealing, exchange, and clearing house activities for crypto asset securities without registering with the SEC. This led to the accumulation of billions of dollars in fees and trading revenue from investors, bypassing compliance with U.S. securities laws intended to protect investors.
The SEC further contends that Kraken’s business practices, deficient internal controls, and inadequate record-keeping introduce additional risks. Kraken was found at times to hold more than $33 billion worth of customer crypto assets and commingle them with its own assets, posing a significant risk of loss for customers, as outlined in the court document.
Additionally, according to the SEC, Kraken held over $5 billion in customers’ cash at times, blending some of it with its own funds and even covering operational expenses directly from bank accounts containing customers’ cash.
The SEC’s lawsuit relies on the Securities Exchange Act of 1934, a legislation established to oversee national securities markets. The SEC contends that Kraken’s actions are subject to U.S. securities laws as the platform functions as a venue where crypto assets are presented and traded as investment contracts.