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

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

Digital Assets

US, UK probe $20 billion Tether transfers tied to Russian exchange.

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

Digital Assets

BlockDAG Presale Raises $9.9M as Batch 5 Nears Sell-Out Amid Bonk’s Fluctuating Trading Volume & Spell’s Bullish Price

Explore BONK’s trading volume, SPELL’s market shifts, and why BlockDAG’s 10,000 ROI makes it an ideal crypto for savvy investors in 2024.

<