Kraken to settle with SEC over listing unregistered securities

abdelaziz Fathi

San Francisco-based cryptocurrency exchange Kraken is facing investigation into whether it improperly offered its US-based users some digital assets that should have been registered as securities, according to a Bloomberg report.

The Securities and Exchange Commission’s scrutiny of Kraken is at a late stage and a settlement could be announced in a matter of days, the report said, citing a person familiar with the matter.

While the report doesn’t specify which financial products the investigation by the SEC’s enforcement unit is scrutinizing, Kraken lets Americans trade more than 180 tokens. If those tokens were deemed securities, the exchange would have to register with the SEC, the regulator has warned.

A Kraken representative said they can’t comment on the investigation but confirmed that the exchange “well capitalized and maintains a diverse product offering across many jurisdictions.”

Nevertheless, the argument over how to classify cryptocurrency tokens is controversial. Generally speaking, the SEC has made it clear that the Howey Test applies to crypto as it does to other investments.

The Howey Test determines if an asset considered a security or a transaction represents an investment contract depending on three elements. First, the investment product can be exchanged for value. Second, the investment involves some element of risk, and third, it must be tradable.

As emphasized by the watchdog, all three elements must be met in order for a token or coin to be a security. And when a digital asset is deemed a security, the SEC staff expects that offers and sales of such digital asset will comport with the registration requirements of the federal laws.

Kraken was hit by $362,158 fine in November to settle its civil liability for apparent violations of US sanctions on countries like Iran. The authorities probed Kraken’s transactions with Iranian users since 2019. In addition, the company failed to inform OFAC about these transactions and did not voluntarily disclose the violations of US sanctions.

The firm’s systems failed to analyze all data required for compliance with OFAC sanctions and therefore did not implement control measures to prevent such users of countries comprehensively sanctioned by the US government from accessing its service.

Nevertheless, the news sends an important message to crypto businesses. OFAC itself reiterated that digital asset institutions should take a risk-based approach to sanctions compliance to detect flaws in internal controls.

  • Read this next

    Digital Assets

    Morgan Stanley to add spot bitcoin ETFs

    Morgan Stanley is reportedly considering adding spot bitcoin ETF products to its brokerage platform. This move comes after the Securities and Exchange Commission (SEC) approved the investment vehicle in January.

    Digital Assets

    Hong Kong ends license applications for crypto exchanges

    Hong Kong has officially ceased accepting license applications from cryptocurrency exchanges as of February 29, signaling a stringent regulatory shift.

    Fintech

    Volt secures EMI license, expands payment solutions in UK

    Volt has successfully obtained an Electronic Money Institution (EMI) license from the UK’s Financial Conduct Authority (FCA).

    Retail FX

    ASIC bankrupts finfluencer Tyson Scholz over stock tips

    The Australian Securities and Investments Commission (ASIC) has effectively bankrupted Tyson Robert Scholz, the figure behind “Black Wolf Pit.” The action marks a significant crackdown on so-called ‘finfluencers’ and individuals providing unlicensed financial services.

    Digital Assets

    Green Bitcoin Presale Raises $1M as Bitcoin Approaches its ATH

    The eco-friendly crypto project Green Bitcoin has seen its limited-time presale phase cross $1 million in funding. With an innovative gamified staking model and energy-efficient foundation, Green Bitcoin offers token holders a way to stake their tokens and generate yield.

    Web3

    Introducing QuickNode Streams: Elevating Blockchain Data Management

    Discover QuickNode’s Latest Innovation: Streamlining Blockchain Data Streaming for Enhanced Efficiency and Accessibility. Explore the Future of Blockchain Technology with Streams.

    Industry News

    John Oliver rips into MetaTrader over role in ‘Pig Butchering’ scams

    “If your friend told you to download an app, and you saw it in the app store with good reviews, you might assume everything on it was legitimate. In before, you saw MetaTrader’s logo which looks like three men in suits jerking each other off under a table – an appropriate metaphor for cryptocurrency if I have ever seen one,” Oliver quipped.

    Digital Assets

    Coinbase supports Nethermind and Erigon to ease Geth dependency

    Coinbase plans to support additional execution clients as America’s largest crypto platform aims to improve the Ethereum blockchain’s resilience and mitigate the risks associated with the network’s heavy reliance on a single client.

    Opinion

    How AI Transforms Trading: Current Trends and Perspectives

    In 2023, we observed a boom of news about Artificial Intelligence (AI) in every field, whether finance, tech or medicine. In 2024 and later, AI will take an even more significant place.

    <