Kraken, a leading cryptocurrency exchange, is being probed by the US Securities and Exchange Commission (SEC) over allegations of breaking securities rules related to certain offerings to American clients. The SEC’s investigation into whether Kraken offered unregistered securities is at an advanced stage and could result in a settlement in the near future. The exact tokens or offerings that are drawing scrutiny are not yet clear.
This development could have significant consequences for the cryptocurrency industry, which is already facing close scrutiny in Washington after the collapse of FTX. A settlement with the SEC could force other crypto companies to resolve their issues with the regulator, which has consistently stated that most of the tokens being offered are securities and should be subject to the agency’s rules.
Gary Gensler, Chair of the SEC, has previously warned that “the runway is getting shorter” for crypto firms to register with the agency. Kraken and the SEC have declined to comment on the matter. It is worth noting that SEC probes do not always lead to enforcement action, but they can result in fines and other penalties for firms and individuals.
Kraken is a San Francisco-based centralized exchange and is ranked as the third largest cryptocurrency exchange with daily trading volume of approximately $650 million globally, according to CoinMarketCap. The platform supports more than 185 cryptocurrencies, although it is unclear how many of these are available to US clients for trading. In addition, users can earn rewards on certain holdings through a process known as staking.
Kraken reached a separate settlement with the Treasury’s Office of Foreign Assets Control last year over allegations of violating US sanctions against Iran. The company agreed to pay over $360,000 and invest $100,000 in sanctions compliance as part of the deal. OFAC noted that Kraken voluntarily disclosed the apparent violations to the government and cooperated with its investigation.
The SEC has already settled with cryptocurrency exchange Poloniex LLC in 2021 over allegations of operating an unregistered digital-asset exchange. Another competitor of Kraken, Coinbase Global Inc., is also under investigation by the SEC over its token listings. The agency has not accused Coinbase of offering unregistered securities, but it has identified several tokens listed on the exchange as securities in a lawsuit against a former Coinbase employee and two others as part of an insider trading case.
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