The complaint against Kraken alleges no fraud, no market manipulation, no customer losses due to hacking or compromised security, and no breaches of fiduciary duty. It includes big dollar amounts but does not allege a single one of those dollars is missing or misused – no ponzi scheme, no failure to maintain adequate reserves, and no failure to preserve the identity of client funds 1:1. Indeed, none of these things would be true.
Instead, the complaint makes a technical argument: that Kraken’s business requires special securities licenses to operate because the digital assets we support are really “investment contracts.” This is incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy.
We disagree with the SEC, and the law is on our side
The SEC already tried this theory and a court rejected it outright. The SEC argued in that case that digital assets bought and sold on trading platforms were really securities transactions. The Federal Court for the Southern District of New York disagreed, ruling that the SEC failed entirely to satisfy the relevant legal test. The court held that the SEC’s unprecedented legal theory was contrary to the “economic reality” of such transactions. The SEC’s case against Kraken will fail, too, and for the same reasons.
The SEC alleges that Kraken “commingled” its own funds with its clients’. This is a similar allegation already made of other crypto trading platforms. The SEC cannot and does not allege that any customer funds are missing, or any loss has occurred. Nor does it allege that any loss will occur. The complaint itself concedes that this so-called “commingling” is no more than Kraken spending fees it has already earned.
The SEC famously argues that digital asset trading platforms like Kraken can simply “come in and register” with the agency. As most securities law experts know, there is not a single law on the books supporting this position. The SEC has promulgated no rule describing how an order in a digital asset should be matched, no guidance on how a trade should be cleared, and articulated no standards for how to broker a digital asset transaction. The allegation is hollow; there is no such thing as an exchange, broker dealer, or clearing agency for investment contracts. The SEC is demanding compliance with a regime that doesn’t exist.
Congress is advancing bipartisan legislation
Meanwhile, groups of lawmakers from both sides of the aisle have questioned what they call SEC’s “regulation via enforcement” approach. They have asked why the agency’s actions against crypto firms seem less focused on “compliance and customer protection,” but were instead “calculated for maximum publicity and political impact.” Others have observed that the SEC’s strategy “does not protect the public.” Indeed, this suit does nothing to protect the public. Like those in complaints that have come before, its allegations are factually incorrect, contrary to law, and the wrong way to create policy in the United States.
Congress is advancing bipartisan bills in both the House and the Senate that would put in place clear registration and oversight frameworks for centralized trading platforms. Congressional action by elected lawmakers, not agency enforcement, is the right path to creating new law for centralized crypto trading platforms in the United States. As our global presence and diverse product offering continues to expand, Kraken remains firmly committed to the U.S. We will continue to defend our U.S. spot market business, our clients, and our community of innovators.
While some critics may argue that digital asset trading platforms simply do not want to be regulated, that is not our position. In fact, Kraken has operated for more than a decade and holds registrations, licenses, authorizations and approvals around the world, including in the United States, United Kingdom, European Union, and Canada, among other developed and emerging markets. We have consistently advocated for practical, effective rules for digital assets. Our testimony to Congress in May of this year emphasized Kraken’s commitment to strong, harmonized consumer protections and anti-money laundering practices in the U.S.
Since our company’s inception in 2011, we have worked tirelessly to ensure U.S. consumers can safely access evolving digital asset technology which was designed to create a fairer, more inclusive financial system. Comprehensive Congressional action is the right path forward and can avoid the U.S. litigating its way to the back of the line as Crypto and Web3 advances around the world.
We remain committed to our clients and our community
Kraken was founded in the U.S. in 2011. Since then, we have steadily grown into a diversified, global digital asset business serving over 10 million clients around the world.
We consistently rank among the best places to buy and sell digital assets thanks to our industry-leading client support, intuitive client experience, fast and reliable performance, and rigorous information security standards. We also rank among the world’s best places to work: We were recently certified by Newsweek as a “Most Loved Workplace” because of our positive vision of the future, alignment of values, and collaborative environment.
Our mission is to accelerate the adoption of cryptocurrency so that everyone can achieve financial freedom and inclusion. Today’s news will not distract us from this mission. It has no impact on the products we offer and we will continue to provide our services to our clients without interruption. We remain committed to do what we believe is right for our clients and the community of innovators using cryptocurrency.
These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, stake or hold any cryptoasset or to engage in any specific trading strategy. Kraken will not undertake efforts to increase the value of any cryptoasset that you buy. Crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your cryptoassets and you should seek independent advice on your taxation position. Geographic restrictions may apply.
