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The Securities and Exchange Commission (SEC) hit cryptocurrency exchange Kraken with $30 million in fines and fees on Thursday, as part of the agency's continuous crackdown against unregistered crypto products.
Since 2019, Kraken, the business alias of Payward Ventures and Payward Trading, has provided its customers with the option to "stake" their crypto tokens. The clients might then use their staked crypto assets to validate other blockchain transactions and earn up to 21 percent interest. According to the SEC's complaint filed in the U.S. District Court for the Northern District of California, investors who confirmed blockchain transactions were rewarded, while those who did not risked having the value of their staked crypto assets "slashed" or even destroyed.
According to the SEC, the agreement constituted an investment contract and should have been filed with the agency. According to the report, investors who relied on Kraken's platform and techniques to generate a profit from the arrangement lost control of their tokens and assumed the "risks associated with those platforms, with very little protection."
Kraken agreed to pay $30 million in disgorgement, prejudgment interest, and civil penalties, as well as cease offering asset staking services and programs, without admitting or denying the claims.
"Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws," stated SEC Chair Gary Gensler in a news release. "Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection."
The SEC's prosecution against Kraken is the most recent in a series of actions involving unregistered crypto goods. In the past year, the agency has negotiated settlements with BlockFi ($50 million) and Nexo Capital ($22.5 million) over unregistered crypto lending products.
In January, the SEC filed a lawsuit against Genesis Global Capital and Gemini Trust Company, saying that the two crypto businesses offered a crypto lending product to investors. This lawsuit remains pending. With a Wells Notice, the SEC prohibited Coinbase, a publicly traded cryptocurrency exchange, from providing a crypto lending product called Lend in September 2021. At the time, the chief legal officer of Coinbase observed that several of its competitors offered similar products.
In a blog post published on Thursday, Kraken stated that its agreement with the SEC extended only to U.S. people and that its staking service program for foreign citizens will continue through a different business. The firm stated that it will "unstake" the crypto assets of any U.S.-based customers, meaning those customers would no longer get staking incentives.
By fLEXI tEAM