Runway Alert: SEC Probe of Kraken for Offering Unregistered Securities at "Advanced Stage"

Crypto Exchange Kraken Faces SEC Probe Over Unregistered Securities

Kraken, one of the world’s largest cryptocurrency exchanges, is embroiled in a probe by a top US financial regulator over whether it broke securities rules related to certain offerings to American clients, according to a person with knowledge of the matter.

The Securities and Exchange Commission probe into whether Kraken offered unregistered securities is at an advanced stage and could lead to a settlement in coming days, said the person, who asked not to be identified discussing a case that hasn’t been made public. It wasn’t immediately clear which tokens or offerings are drawing scrutiny.

Any action against Kraken could have significant ramifications for the industry, already facing sharp scrutiny in Washington after FTX’s collapse late last year….

Sorry crypto world, but SEC isn’t backing down on ‘regulation by enforcement’

Hodl Law, which describes itself as focusing on “legal services for digital assets and cryptocurrency,” sued the SEC last November in federal court in San Diego, arguing that the SEC has engaged in “years-long, purposeful delay and obfuscation” in order to extend its regulatory reach over cryptocurrencies. That strategy, Hodl Law asserted, didn’t give token-holders fair notice about whether their coins are securities.

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In Monday’s dismissal brief, the SEC offered technical arguments to toss the case, asserting to U.S. District Judge James Lorenz that because there’s no live case or controversy between Hodl Law and the commission, the law firm lacks constitutional standing and the court does not have jurisdiction under the Declaratory Judgment Act.

But that wasn’t all. The SEC also said that it’s not obliged to warn crypto users about its interpretation of securities laws.

Will the SEC Convince a Court It’s Right to Label These Tokens as Securities?

Nine tokens – most of which traded at Coinbase (COIN) – were featured by the regulator in an insider-trading case against a former manager at the company. Many believe that maneuver has importance well beyond the enforcement action, because the cryptocurrency industry has been eager to settle the question of which digital assets may be regulated by the SEC as securities and which may be commodities regulated by the Commodity Futures Trading Commission (CFTC). The SEC appeared to be slowly answering that question token by token.

Now the regulator will have to defend the assertion in federal court that the nine tokens tied to the case should be considered securities, because lawyers for the ex-Coinbase employee, Ishan Wahi, filed an argument this week that the tokens weren’t securities and the agency shouldn’t be using one person’s enforcement action to decide “how major questions of law that loom over entire industries should be resolved.”

Why two top San Francisco SEC veterans disagree on crypto

They were the Securities and Exchange Commission duo who took down a major Silicon Valley scam at the dawn of the web revolution, and now they’re duking it out over cryptocurrency.

Marc Fagel, the SEC’s former San Francisco regional director, and Michael Dicke, once Fagel’s No. 2 who served as associate director, led the team that exposed the stock options backdating scandal that snagged tech giants including Apple nearly 20 years ago.

Fast forward two decades: Fagel and Dicke, who are no longer with the SEC, are on opposite sides of a raging debate over a new and controversial technology that their former agency is wrestling with.

U.S. Agencies Seek Tougher Rules, Internal Probes on Stock Trading by Federal Officials

Separately, the SEC last week proposed new ethics restrictions, including banning employees from investing in financial industry sector funds. The SEC already bars employees from owning or trading stocks that are under investigation by the agency, regardless of whether the employee is working on the matter.

The SEC’s ethics rules are stricter than those at many other agencies. But the Journal’s investigation found that those who violate the rules across federal agencies, including the SEC, rarely face severe consequences.

Why An Independent Examiner In The FTX Bankruptcy Is Critical

The February 6, 2023 hearing, before U.S. Bankruptcy Court Judge John T. Dorsey, pertains to a disturbing issue which has been brewing in the FTX bankruptcy – whether the FTX bankruptcy judge should appoint an independent examiner in the matter.

Whether the FTX bankruptcy needs an independent examiner is obvious. Only an independent examiner whose sole mission is to seek the truth and can conduct a deep dive into the FTX debacle without the burden of any conflicts, without the burden of a fiduciary responsibility to creditors or others and without the burden of “maximizing value for creditors.”