SEC Sued Kraken Over Its Unregistered Trading Business

The Securities and Exchange Commission sued Payward Inc. and Payward Ventures Inc., which operate as Kraken, on November 20, 2023, alleging that the cryptocurrency platform functioned as an unregistered securities exchange, broker, dealer and clearing agency.

Filed in the U.S. District Court for the Northern District of California as case 3:23-cv-06003, the 90-page complaint extended the SEC’s campaign against large U.S.-facing crypto intermediaries. The agency had brought similar registration cases against Binance and Coinbase in June 2023. Kraken denied the allegations and said its products and services would continue without interruption.

The filing began a contested civil case; it was not a judicial finding that Kraken or any listed token had violated securities law.

Four regulated functions in one platform

The SEC alleged that, since at least September 2018, Kraken had earned hundreds of millions of dollars facilitating transactions in crypto assets that the agency considered securities. According to the complaint, Kraken brought buyers’ and sellers’ orders together like an exchange, handled transactions for customers like a broker, traded as principal through services including Instant Buy like a dealer, and maintained assets and settled customer transactions like a clearing agency.

That combination was central to the case. Traditional securities regulation imposes separate registration, disclosure, inspection, recordkeeping and conflict-management obligations on those functions. The SEC’s position was that Kraken could not avoid those requirements merely because the instruments and settlement systems involved crypto assets.

The complaint identified a non-exhaustive group of 11 tokens for detailed treatment: ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG and SOL. The SEC alleged that transactions in those assets involved investment contracts. That allegation did not transform every unit of each token into a security by declaration; the agency still had to prove that Kraken conducted regulated securities activity under the facts and law presented to the court.

Custody allegations raised a separate concern

Beyond registration, the SEC alleged inadequate controls and recordkeeping around customer property. Its complaint said Kraken held more than $5 billion in customer cash and more than $33 billion in customer crypto assets during 2021. It alleged that some customer cash was commingled with company funds and that operational expenses were sometimes paid from accounts containing customer cash.

Those figures describe balances alleged for an earlier period, not amounts missing on November 20. The complaint did not charge Kraken with fraud, allege a customer shortfall or claim that the company lacked one-to-one reserves. It did say an independent auditor had identified commingling of customer and company crypto as presenting a significant risk of loss and had found material errors affecting Kraken’s 2020 and 2021 financial statements.

Kraken answered that the disputed cash handling amounted to spending fees it had already earned. It maintained that no customer money was missing or misused and rejected the SEC’s assertion that assets traded on its platform constituted investment contracts. Those were Kraken’s contemporaneous defenses, not independently established conclusions.

A second SEC confrontation in 2023

The lawsuit followed Kraken’s February 9, 2023 settlement over its U.S. staking-as-a-service program. In that earlier matter, two Kraken entities agreed to stop offering the program to U.S. customers and pay $30 million in disgorgement, interest and civil penalties without admitting or denying the allegations.

The November case was broader. The SEC sought injunctions against Kraken’s trading activity involving securities, disgorgement with interest and civil penalties. Kraken argued that Congress, rather than enforcement litigation, should establish a workable registration framework for crypto exchanges.

No event-day cryptocurrency price or trading-volume reaction is claimed here. The verified development was institutional: a major U.S.-facing exchange entered litigation that tested how existing securities-market rules applied to its core trading and custody model.

Later context

On March 27, 2025, the SEC and Kraken dismissed the case with prejudice. The Commission said that decision reflected its changed regulatory approach and was not an assessment of the merits. That later disposition does not alter what was knowable on November 20, 2023: the allegations were contested, Kraken remained operational and no court had resolved the claims.