SEC Cracks Down on Kraken for Violating Securities Laws with Crypto Staking Program

The Securities and Exchange Commission (SEC) has charged crypto exchange Kraken with failing to register the offer and sale of its staking program. Under the program, Kraken allowed customers to stake their crypto on the platform and get annual returns of up to 21 percent.

Kraken settled with the SEC and agreed to immediately stop offering securities through crypto staking services. The company will also pay $30 million in disgorgement, civil penalties, and prejudgment interest.

The SEC’s complaint alleges that since 2019, Kraken has been offering staking services to the public, pooling crypto assets transferred by investors and staking them on their behalf. The complaint claims that Kraken claimed that its staking investment program offered easy-to-use platforms and benefits derived from Kraken’s efforts, such as regular investment returns and payouts.

SEC Chair Gary Gensler stated that crypto intermediaries, including staking-as-a-service providers, must register and provide full, fair, and truthful disclosure, and investor protection in accordance with federal securities laws. Gensler added that the SEC’s action was meant to send a clear message to the marketplace that staking-as-a-service providers must comply with the securities laws.

In addition to ceasing its staking program and paying monetary relief, Kraken consented to the entry of a final judgment that would permanently enjoin it from violating Section 5 of the Securities Act of 1933 and from offering or selling securities through crypto asset staking services or staking programs.

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The SEC’s Director of Enforcement, Gurbir S. Grewal, stated that the case was another step in protecting retail investors from crypto investments outside the protections provided by federal securities laws. Grewal added that investors deserve proper disclosures, and that Kraken was offering outsized returns untethered to any economic realities, while retaining the right to pay no returns at all, providing zero insight into its financial condition, or even whether it had the means to pay the advertised returns.

The settlement had an immediate impact on the crypto market, with the total market cap falling 3.44 percent in the past 24 hours.