SEC Charges Kraken for Unregistered Offer of "Staking-as-a-Service"

Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges

The Securities and Exchange Commission today charged Payward Ventures, Inc. and Payward Trading Ltd., both commonly known as 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.

To settle the SEC’s charges, the two Kraken entities agreed to immediately cease offering or selling securities through crypto asset staking services or staking programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties.

Kraken Down: Statement on SEC v. Payward Ventures, Inc., et al.

Most concerning, though, is that our solution to a registration violation is to shut down entirely a program that has served people well. The program will no longer be available in the United States, and Kraken is enjoined from ever offering a staking service in the United States, registered or not. A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.

More transparency around crypto-staking programs like Kraken’s might well be a good thing. However, whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear.

SEC Intensifies Crypto Enforcement With Exchange Settlement

The first case of its type, the settlement advances SEC Chair Gary Gensler’s effort to rein in what he characterizes as widespread noncompliance with U.S. securities laws by crypto platforms. Since taking office in 2021, Mr. Gensler has argued that crypto exchanges have broken the law by allowing investors to buy and sell assets that should have been registered with the SEC before they were offered.

The SEC has yet to fully test Mr. Gensler’s theory in court, drawing criticism from some investor-protection advocates that the agency moved too slowly to stop the wave of bankruptcies that have plagued crypto in recent months. It only sued Sam Bankman-Fried after his crypto exchange, FTX, mishandled billions of dollars of investor funds and collapsed.

Adani Faces Uphill Battle in Potential Hindenburg Research SuitCompanies targeted by short reports often look to respond by suing the report issuers. Those that follow through with litigation don’t have a track record of winning. The cases are hard to prove because they often hinge on defamation claims, and the First Amendment provides a strong line of defense for short-sellers, attorneys said.

“Such litigations are fact-specific but often boil down to courts balancing between protecting the right to offer opinion and permitting the ability to manipulate information for financial gain at a cost to companies and their investors,” Akin Gump Strauss Hauer & Feld LLP’s Joseph Sorkin said.

Binance.US CFO Says Customer Funds Are Safe

The U.S.-based arm of crypto exchange Binance doesn’t lend out customer assets and doesn’t commingle deposits with the larger platform, its financial chief said Wednesday.

“If all our customers show up tomorrow and demand their money…we will still have corporate assets left on our balance sheet,” Jasmine Lee said at The Wall Street Journal’s CFO Network Summit. “The whole concept of a bank run is actually impossible.”