SEC Hits Kraken With $30 Million Fine, Orders Crypto Exchange to Halt Staking in US
San Francisco-based crypto exchange Kraken has agreed to pay the SEC $30 million and halt its staking service for U.S. clients, the SEC announced today.
The SEC today hit San Francisco-based cryptocurrency exchange Kraken with a $30 million fine for violating securities laws.
In a Thursday announcement, the regulatory body announced the firm had failed to register the offer and sale of their crypto asset staking-as-a-service program.
Kraken—which consists of Payward Ventures, Inc. and Payward Trading Ltd.—agreed to halt its staking service for U.S. clients but did not admit or deny the allegations in the SEC’s complaint.
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SEC Chair Gary Gensler said: “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.”
Kraken did not immediately respond to Decrypt’s questions but said it would still offer staking services for non-U.S. clients through a separate Kraken subsidiary.
Staking is the process of “locking-up” cryptocurrency to keep a blockchain’s network running. Those who hold proof-of-stake assets—such as Ethereum (ETH), the second biggest cryptocurrency—pledge it to the network by sending it to a specific blockchain address and can receive rewards for doing so. For example, holding ETH on Kraken would have generated between 4% and 7% yield on those holdings. On Coinbase, ETH holders can currently earn up to 4.27% APY on their tokens.
Today we charged Kraken with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.
— U.S. Securities and Exchange Commission (@SECGov) February 9, 2023
Kraken is the fourth largest crypto exchange by daily volume, according to CoinGecko. It allows customers to buy and sell cryptocurrencies like Bitcoin, Ethereum, and Dogecoin.
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Its staking service allows users to earn up to 24% yearly with some tokens.
The SEC has got tough on the crypto world lately—especially exchanges: Just last month it hit Genesis and Gemini with charges for offering unregistered securities.
SEC Chair Gary Gensler wants to crack down on all the coins and tokens he believes are unregistered securities.
Today @SECGov charged Kraken for the unregistered offer & sale of securities thru its staking-as-a-service program.
Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries must provide the proper disclosures & safeguards required by our laws.
Regulators have stepped up pressure following the collapse of the huge digital asset exchange FTX last year.
The company was once one of the biggest exchanges in the space but went bankrupt after it was allegedly criminally mismanaged by—in the words of its new CEO John J. Ray III—“a very small group of grossly inexperienced and unsophisticated individuals.”
Kraken has faced regulatory troubles recently. In November, it agreed to pay the U.S. Treasury Department’s Office of Foreign Assets Control $362,158.70 for apparent violations of sanctions against Iran.
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Editor's note: This article was updated after publication to clarify that Kraken is only halting its staking service in the U.S.
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