SEC Charges Kraken for Unregistered Sale of Crypto Asset Staking-As-A-Service
Payward Ventures, Inc. and Payward Trading Ltd., commonly known as Kraken, have been charged by the Securities and Exchange Commission (SEC) for failing to register the offer and sale of their crypto asset staking-as-a-service program. The program involved investors transferring crypto assets to Kraken for staking in exchange for advertised annual investment returns of up to 21 percent.
As part of the settlement, the two Kraken entities have consented to stop offering and selling securities through their crypto asset staking services and programs, and pay a total of $30 million in disgorgement, interest accrued before judgment, and fines.
Details of the SEC Complaint
According to the SEC’s complaint, Kraken has been offering and selling its crypto asset “staking services” to the public since 2019. The services involved pooling certain crypto assets transferred by investors and staking them on behalf of the investors. Staking is a process where investors lock up their crypto tokens with a blockchain validator with the aim of receiving new tokens as rewards when their staked tokens are part of the validation process for the blockchain.
The complaint alleges that Kraken advertised its staking investment program as an easy-to-use platform with benefits that come from Kraken’s efforts on behalf of investors, including strategies to obtain regular investment returns and payouts. The SEC claims that Kraken failed to provide the proper disclosures and safeguards required by federal securities laws.
Protecting Retail Investors
SEC Chair Gary Gensler emphasized the importance of crypto intermediaries providing proper disclosures and safeguards when offering investment contracts in exchange for investors’ tokens. “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,” Gensler stated.
Ceasing the Staking Program and Monetary Relief
Payward Ventures, Inc. and Payward Trading Ltd. have agreed to discontinue their staking program and pay the monetary relief without admitting or denying the allegations in the SEC’s complaint. They have also consented to the entry of a final judgment, subject to court approval, that would permanently enjoin each of them from violating Section 5 of the Securities Act of 1933 and permanently enjoin them and any entity they control from offering or selling securities through crypto asset staking services or staking programs.
Kraken, a leading cryptocurrency exchange, has been charged by the US Securities and Exchange Commission (SEC) for failing to register the offer and sale of its crypto asset staking-as-a-service program. As part of the settlement, Kraken has agreed to pay $30 million in disgorgement, prejudgment interest, and civil penalties, and to immediately cease offering or selling securities through crypto asset staking services or staking programs.
In recent years, staking has become a popular way for investors to earn passive income from their crypto holdings. The process involves locking up or “staking” crypto assets with a blockchain validator in exchange for rewards in the form of new tokens. However, with the rise of staking-as-a-service providers like Kraken, investors are taking on increased risk, as they must give up control of their assets and rely on the platform to act in their best interests.
SEC Charges Kraken for Unregistered Sale of Staking Services
The SEC alleges that since 2019, Kraken has offered and sold its staking services to the general public, pooling assets from investors and staking them on their behalf. In exchange, Kraken promised advertised annual investment returns of up to 21 percent. However, according to the SEC’s complaint, Kraken failed to provide the proper disclosures and safeguards required by federal securities laws.
Conclusion
The SEC has taken legal action against Kraken for illegally selling its crypto asset staking program without registering it and not adhering to the necessary disclosures and safeguards mandated by federal securities laws. As part of the settlement, Kraken must stop offering and selling securities through its staking services, pay a $30 million fine, and be permanently banned from violating the Securities Act of 1933’s Section 5.
The aim of the enforcement is to protect retail investors from harm in crypto investments that are not protected by federal securities laws. This case serves as a reminder for crypto intermediaries to follow federal securities laws and provide adequate disclosures and safeguards when offering investment contracts in exchange for investors’ tokens.
