Cryptocurrency exchange Kraken has stated that its operations remain unaffected despite the U.S. Securities and Exchange Commission (SEC) filing what Kraken calls an "incorrect" and "disastrous" lawsuit against the company on Monday.
Kraken's response comes in the wake of the SEC's lawsuit against Kraken's parent companies, Payward and Payward Ventures, accusing them of operating as an unregistered online trading platform.
In a blog post, Kraken clarified that the lawsuit has no impact on its products and affirmed its commitment to its U.S. and global clients and partners.
This legal action against Kraken is reminiscent of similar actions taken against Coinbase and Binance, both of which the SEC accuses of running unregulated securities exchanges. Additionally, the U.S. Department of Justice is reportedly seeking over $4 billion from Binance as part of a potential settlement to conclude an ongoing investigation.
Regarding Kraken's regulatory situation, the company emphasized that the complaint does not include allegations of fraud.
Kraken stated, "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." The company highlighted that despite the substantial dollar amounts mentioned in the lawsuit, it does not allege that any funds are missing or misused, and there is no indication of a ponzi scheme, inadequate reserves, or a failure to safeguard client funds.
Kraken specifically criticized the SEC's argument that its products were considered investment contracts, describing it as "incorrect as a matter of law, false as a matter of fact, and disastrous as a matter of policy."
Faryar Shirzad, chief policy officer of Coinbase, commented on the lawsuit, emphasizing the importance of rulers applying actual laws and the rule of law as a cornerstone of government by the consent of the governed.
In its lawsuit, the SEC claimed that Kraken had occasionally combined customer crypto assets valued at over $33 billion with its own, posing a "significant risk of loss" to customers. Similarly, the SEC alleged that Kraken had combined more than $5 billion worth of customer cash with its own.
In response, Kraken argued that the SEC did not allege any missing customer funds or losses and clarified that the so-called "commingling" was Kraken spending fees it had already earned.
Kraken also referenced the SEC's past lawsuits against Ripple and Coinbase, highlighting the regulator's argument that digital asset trading platforms like Kraken can "simply 'come in and register' with the agency." Kraken countered this claim by stating that there is no existing law supporting this position and that the SEC is demanding compliance with a regime that does not exist.
In February, the SEC charged Kraken's parent companies with failing to register the offer and sale of their crypto asset staking-as-a-service program. The parent entities resolved the charges by paying $30 million in disgorgement, prejudgment interest, and civil penalties.
