CFTC Issues $1.25m Penalty Against Kraken On Alleged Illegal Offerings

The Commodity Futures Trading Commission (CFTC) has issued an order against Kraken, a top crypto exchange. The charges were filed against Payward Ventures Inc. (Kraken’s owner) as civil financial consequences for allegedly violating the Commodities Exchange Act.

The CFTC says that Kraken has not filed due compliance requirements as a futures commission merchant and service provider, and as such has illegally offered margined retail commodity transactions in digital assets to its U.S. customers who were not eligible for the said financial products. The CFTC has traced this activity to be between June 2020 and July 2021.

For the offerings to be appropriate, Kraken must register as a Designated Contract Market (DCM) or FCM for futures products.The DCM status is necessary for offering, while the FCM registration is required for listing and trading in the open market.

“How Kraken would be regulated as an FCM is not entirely clear, because many of the Commission’s rules governing its regulation of traditional FCMs do not fit Kraken’s role as an exchange,” said CFTC Commissioner Dawn Stump.

Kraken issued a statement in response to the charges:

“We appreciate that today’s settlement acknowledges our cooperation and engagement on the issue. We are committed to working with regulators to try to ensure the rules governing digital assets create a level playing field globally – one that allows the crypto space in the U.S. to flourish, while protecting the interests of individuals and the integrity of the industry.”

Despite this nudge to being compliant, Kraken neither admitted nor denied that the CFTC’s findings were indeed correct, but has since complied to the cease and desist to save it from any further violations of the Commodities Exchange Act. The exchange has also waived its rights to any hearings or future court review in line with the charges.

A concurring statement regarding the settlement was issued by the CFTC, highlighting how existing agency guidance from its end cannot at the moment fully clarify rules for cryptocurrency firms that are planning to offer retail commodity transactions, especially those tied to liquid digital assets.

“This motion is a part of the CFTC’s broader effort to offer protection to U.S. shoppers. Margined, leveraged or financed virtual asset buying and selling introduced to retail U.S. shoppers should happen on correctly registered and controlled exchanges in response to all appropriate regulations and rules.” stated Vincent McGonagle, director of enforcement at the CFTC.

With this unprecedented case, Kraken hopes to “proactively” lead the discussion on this matter for the benefit of the “U.S. digital asset industry and U.S. investors writ large” impacting the crypto industry as well, given how Kraken’s position as a leading crypto exchange valued at over $10 billion would set the ground for clearer regulatory frameworks for offerings of this kind.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.