(Bloomberg) -- 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. A settlement with the SEC could pressure other crypto firms to hash out deals with the regulator, which has repeatedly said most of the tokens being offered are securities that should be subject to the agency’s rules.
SEC Chair Gary Gensler told Bloomberg in December that “the runway is getting shorter” for crypto firms to register with the agency.
Kraken, whose legal name is Payward Inc., and the SEC declined to comment. SEC probes don’t always lead to enforcement action but can result in firms and individuals paying fines and facing other penalties.
San Francisco-based Kraken is the No. 3 cryptocurrency exchange with daily trading volume of roughly $650 million globally, according to CoinMarketCap. On its website, the company says it supports more than 185 cryptocurrencies., though it wasn’t immediately clear how many are available to US clients to trade.
Users can also earn rewards on certain holdings through a process known as staking.
Kraken reached an unrelated settlement with Treasury’s Office of Foreign Assets Control late last year over allegations that it violated US sanctions against Iran. The company agreed to pay a little over $360,000 as part of the deal and invest $100,000 in sanctions compliance. OFAC at the time said Kraken voluntarily disclosed the apparent violations to the government and cooperated with its investigation.
The SEC in 2021 settled with cryptocurrency exchange Poloniex LLC over allegations that it was operating an unregistered digital-asset exchange.
Coinbase Faces SEC Probe on Crypto Listings; Shares Tumble
The SEC also has an open investigation into one of Kraken’s competitors, Coinbase Global Inc., over its token listings — a probe previously reported by Bloomberg News. The agency hasn’t accused Coinbase directly of offering unregistered securities but did identify several tokens listed on the exchange as securities in a lawsuit against a former Coinbase employee and two others as part of an insider trading case.
--With assistance from Lydia Beyoud and Austin Weinstein.
©2023 Bloomberg L.P.
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