Kraken settles with SEC and ends staking services
The Securities Exchange Commission (SEC) accused Kraken’s two crypto exchange subsidiaries, Payward Ventures Inc and Payward Trading Ltd, of failing to register and offer their asset staking-as-a-service program.
Kraken agreed to immediately stop offering or selling securities through crypto asset wagering programs to settle the SEC’s charges. In addition, the company will pay a fine set at $30 million in disgorgement, prejudgment interest and civil penalties.
As an immediate response, Kraken will automatically remove all US client funds registered in the staking program on the chain. The asset will no longer earn stake rewards.
This applies to all staked assets except Ethereum (ETH), which will be unstaked after the upcoming Shanghai upgrade. After that, US customers will not be able to stake any additional assets, including ETH, according to an official statement by the Kraken.
Kraken will continue to provide betting services for non-US customers through a separate Kraken subsidiary for various customers.
An expected win by the SEC?
According to the statement released today by Kraken, betting services for non-US customers will continue uninterrupted. These customers can continue to stake and unstaked assets and automatically earn stake rewards as usual. SEC Chairman Gensler said:
Today, we are taking another step to protect retail investors by shutting down this unregistered crypto staking program, where Kraken not only offered investors outsized returns untethered to financial realities, but also retained the right to pay them no returns at all. All the while it gave them zero insight into, among other things, its financial condition and whether it even had the means to pay the marketed yield in the first place.
According to the SEC’s complaint, since 2019 Kraken has offered and sold its crypto-asset staking services to the general public, where Kraken pools certain crypto-assets transferred by investors and bets them on behalf of those investors. Kaken offered these services to US customers in violation of US government securities terms and regulations.
This decision comes after Kraken’s new CEO Dave Ripley told that Reuters that he does not plan to delist any tokens listed as securities by the Securities and Exchange Commission or register with the regulator. SEC Chairman Gensler added:
Whether through stake-as-a-service, lending or other means, when offering investment contracts in exchange for investors’ tokens, crypto-intermediaries must provide the proper disclosures and safeguards required by our securities laws. Today’s action should make clear to the market that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection.
What are the steps to follow for US customers?
US customers will not be able to deposit new assets. Previously staked non-ETH assets will be deferred automatically by the platform. These assets will reportedly return to the customer’s spot wallet and will no longer earn rewards.
Kraken will pay rewards in its non-stake form through February 9th. As mentioned, all staked ETH will be unstaked after Ethereum’s Shanghai upgrade and will continue to earn rewards until then. Kraken will not change the payout structure until after the Shanghai upgrade.
The SEC’s investigation was conducted by Laura D’Allaird and Elizabeth Goody, supervised by Paul Kim, Jorge G. Tenreiro and David Hirsch, with assistance from Sachin Verma, Eugene Hansen and James Connor.
Bitcoin continues its downtrend, retracing below the critical level of $22,000, and trading at $21,700. Bitcoin is down 4.8% in the last 24 hours and registered a retracement of 7.8% in the last seven days.
Featured image from Unsplash, chart from TradingView.
