HomeCryptoCrypto exchange Kraken under investigation by SEC

Crypto exchange Kraken under investigation by SEC

The US Securities and Exchange Commission (SEC) recently launched an investigation against crypto exchange Kraken for selling unregistered securities.

Apparently, the investigation is already at a very advanced stage and there is talk of a settlement with the San Francisco-based crypto exchange.

There has been no comment from Kraken executives, and the Securities and Exchange Commission (SEC) has not decided to comment on the matter either. It all still remains a mystery, but we will see how the situation develops in the coming days.

Kraken: the world’s fourth largest crypto exchange is under SEC investigation

According to CoinGecko, Kraken is the fourth largest exchange in the world by daily volume. This is not the first time the exchange has faced the Securities and Exchange Commission (SEC).

Not long ago, in November to be exact, the crypto asset exchange faced allegations of wrongdoing. Had to pay the US Treasury Department’s Office of Foreign Asset Control the sum of $362,158.70 for apparent violations of sanctions against Iran.

However, back in November, new CEO Dave Ripley stated that the exchange had no plans to remove coins or tokens that the SEC had labeled as securities.

Thus, it seems that Kraken’s company was already aware of what it was up against and was most likely biased toward what is happening. Which is also why an agreement is being reached between the two parties.

The cryptocurrency exchange Kraken, is certainly not the first to be accused of selling unregistered securities. In January, the SEC charged Genesis and Gemini with the same wrongdoing, namely the offering of unregistered securities.

However, the accusations against Genesis and Gemini triggered a backlash for the SEC, which was accused of targeting many exchanges, while remaining lenient with others, such as the now-bankrupt “FTX.”

On this issue, Gemini co-founder Tyler Winklevoss, responding directly to the Securities and Exchange Commission (SEC), said on Twitter:

“It is disappointing that SEC has chosen to file a lawsuit today while [Gemini] and other creditors are working hard together to recover funds. This action does nothing to further our efforts and help Earn users recover their resources. Their behavior is totally counterproductive.”

Kraken and the deal for Iranian sanctions violations

In June 2022, crypto exchange Kraken, settled with the Office of Foreign Asset Control (OFAC). An organ of the US Treasury Department, agreeing to pay $362,158.70 for apparent violations of sanctions against Iran.

“Due to Kraken’s inability to implement appropriate geolocation tools in a timely manner, including an automated Internet Protocol (IP) address blocking system, Kraken exported services to users who appeared to be in Iran when engaging in virtual currency transactions on Kraken’s platform.”

These are the words of the SEC expressed in a statement regarding the matter.

The news that the exchange had indiscretions with some customers in Iran was revealed by the New York Times. Therefore, the investigation confirmed that the exchange allowed customers in Iran and other sanctioned countries to use its platform.

The Chief Legal Officer of Kraken, Marco Santori, said that he is pleased that the matter has been resolved and that in fact, Kraken was involuntarily involved and that it was all a mistake. Discovered too late.

However, US authorities say Kraken processed 826 transactions, totaling about $1,680,577.10, for individuals who were determined to have been in Iran at the time.

The SEC wants to label 9 tokens as securities, but lawyers disagree!

The regulatory battle of the Securities and Exchange Commission (SEC) never ends, its various attempts to regulate the regulatory presence in the cryptocurrency market seems to be endless. Lawyers defending Ishan Wahi, a former Coinbase manager accused of insider trading, are challenging the SEC’s claim that a list of nine cryptocurrencies with which Wahi interacted are, in fact, securities.

In July, the DOJ filed an indictment against Ishan Wahi, his brother Nikhil Wahi and their friend Sameer Ramani for participating in a cryptocurrency insider trading scheme. The group made $1.5 million by exploiting Ishan’s insider knowledge about the new tokens that would be listed on Coinbase, prior to their public announcement.

A security is an investment contract distinguished by four basic criteria, as set forth in the Article 2 Howey test.

For a security transaction to take place, there must be an investment of money in a joint venture with the expectation of profits from the efforts of others.

The defendants claim that the tokens in question were all sold on the secondary market. So the purchasers never “invested” in any specific enterprise at the time of purchase.

Moreover, the value of these tokens derives most of their value from fluctuations within the market, rather than from the management efforts of a centralized party.

To date, SEC Chairman Gary Gensler maintains that the vast majority of cryptocurrencies pass the Howey test and can therefore be classified as securities. Even Ether, the second largest cryptocurrency by market capitalization, has fallen under scrutiny for whether it passes the test, particularly after its move to a Proof of Stake consensus mechanism.