U.S. CFTC Fines Kraken Exchange $1.25M Over Illegal Offerings

Popular cryptocurrency exchange Kraken will pay a $1.2 million fine following charges by the United States Commodity Futures Trading Commission (CFTC).

According to a CFTC press release, the exchange company was penalized for allegedly providing its U.S. customers with specific Bitcoin and other digital asset transaction services that the regulator did not approve.

The Full Story

In an issued order by CFTC, the government agency claimed that Kraken Exchange made digital asset margin transactions to its U.S. customers who were not eligible contract participants, providing and maintaining custody of all purchased assets.

The order further claimed that Kraken liquidated its customers’ assets as payment for not meeting up with the 28-day repayment obligation set by the company.

The liquidation process could as well take place if the value of their customers’ collateral dropped below a particular threshold percentage of the total outstanding margin.

Since customers could not transfer assets away from the exchange until they fulfilled the repayment obligation, the exchange was in a way exploiting their clients as the actual delivery of the purchased assets sometimes failed to occur, the CFTC alleged.

Violating CEA Rules

The regulator termed these transactions illegal since they were supposed to take place on a registered exchange that trades derivatives contracts. Kraken was, however, unlawfully operating as an unregistered Futures Commission Merchant (FCM).

Kraken’s action which was carried out consistently for about 13 months (June 2020-July 2021) is said to be in violation of the Commodity Exchange Act (CEA), hence the reason for the $1.25 Million fine.

The filing and settling charges by CFTC required that Kraken not only pay the stated amount of capital but also to “cease and desist from further violations of the Commodity Exchange Act (CEA).”

Commenting on the development, Vincent McGonagle, acting director of the CFTC’s enforcement division, said:

“This action is part of the CFTC’s broader effort to protect U.S. customers. Margined, leveraged or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations.”

Meanwhile, in October 2020, Coinfomania reported that the CFTC also filed civil enforcement charges against crypto exchange and derivatives platform, BitMEX, for violating the agency’s rules.