In a recent development, a US federal judge has denied the request made by crypto exchange Kraken to dismiss the lawsuit filed by the Securities and Exchange Commission (SEC). This lawsuit alleged that Kraken was operating an unregistered securities exchange. The SEC’s complaint also accused Kraken of acting as an unregistered securities exchange, broker, dealer, and clearing agency. It further stated that the exchange was illegally facilitating the trading of securities while earning millions of dollars since 2018.
The SEC claimed that by not registering as a security broker, Kraken was preventing customers from receiving essential protections such as regulatory inspections, safeguards against conflicts of interest, and compliance with recordkeeping requirements. Despite Kraken’s argument that the SEC’s allegations were unfounded and based on a flawed interpretation of securities laws, the judge ruled in favor of the SEC.
The ruling aligns with SEC Chair Gary Gensler’s stance that most digital tokens are unregistered securities subject to SEC oversight. This decision will have significant implications not only for Kraken but also for the broader crypto industry. The case, officially titled Securities and Exchange Commission v. Payward Inc., will continue in the US District Court for the Northern District of California.
This ruling comes at a crucial time for Kraken as the exchange reportedly plans to raise $100 million in a final funding round before its eventual initial public offering (IPO) in 2025. However, with the setback in court, Kraken may face challenges in executing its fundraising plans. Additionally, Kraken recently lost a case filed by the Australian securities watchdog for failing to distribute margin trading products within the rules set by the Australian Securities and Investments Commission (ASIC).
The Australian Federal Court ruled that Bit Trade Pty, which operates the Kraken exchange in Australia, had failed to adequately distribute its margin trading products within ASIC rules. ASIC claimed that Bit Trade had been offering “margin extension” without compliance, contravening the Corporations Act. Both parties now have seven days to reach an agreement on declarations and injunctions, with ASIC intending to seek financial penalties against Bit Trade.
The denial of Kraken’s motion to dismiss the SEC lawsuit by a US federal judge highlights the regulatory challenges facing the crypto industry. The ruling underscores the importance of compliance with securities laws and regulations, especially as regulators like the SEC increase their oversight of digital asset exchanges. Kraken’s legal battles in both the US and Australia serve as a reminder of the complexities and uncertainties surrounding the regulatory environment for cryptocurrency businesses. As Kraken and other crypto exchanges navigate these challenges, regulatory compliance and transparency will be key to their long-term success and sustainability.
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