San Francisco-based cryptocurrency exchange Kraken is being investigated by the United States Securities and Exchange Commission (SEC) over the alleged sale of unregistered securities to American clients, according to a February 8 Bloomberg report that cited people familiar with the matter.
Advanced Stage Investigation
Per the report, the investigation is at an advanced stage and could lead to a settlement in the coming days. However, at this stage, it is not clear which tokens or offerings are drawing scrutiny from the securities watchdog.
This is not the first time Kraken has been the subject of scrutiny from a United States financial regulator. Late last year, the exchange agreed to a $362,158 settlement with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for apparent violations of sanctions against Iran.
In July, SEC Chair Gary Gensler called on U.S. crypto exchanges to register with the agency as securities exchanges, arguing that such entities are no different from securities exchanges just because a different technology is used. He added that regulating cryptocurrencies in another way would “risk undermining 90 years of securities law.”
Kraken CEO: No SEC Registration Plans
Kraken CEO Dave Ripley argued in September that he sees no reason to register with the SEC as an exchange because his company does not offer securities. Gensler has, however, reiterated that most cryptocurrencies are securities, and there will not be any new guidelines for the crypto sector.
The SEC’s primary theory on whether cryptocurrencies are subject to securities regulation is based on the Howey test framework, which states that an asset can be classified as security if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others.
Meanwhile, according to a recent report from consulting company Cornerstone Research, the SEC brought a record 30 enforcement actions against crypto market participants in 2022, a 50% increase from the 20 actions launched in the year prior.
