The Securities Exchange Crackdown: Everything You Need To Know

A lawsuit filed on Monday makes Kraken the SEC’s latest target while the crypto industry is shaken as CZ steps down as Binance CEO.

The U.S. Securities and Exchange Commission (SEC) has been on the offensive against major cryptocurrency exchanges. In a recent move, the SEC sued Kraken alleging unregistered securities exchange operations and co-mingling of customer funds. Kraken has vowed to defend itself by arguing that Congress should define the regulatory framework for crypto exchanges, and contesting the SEC's views on digital assets. Binance, another leading exchange, faced significant penalties and a change in leadership due to criminal charges related to sanctions and regulatory violations.

It's Your Turn Kraken…

The U.S. Securities and Exchange Commission (SEC) woke up on a mission this past Monday morning when it sued cryptocurrency exchange Kraken for operating an unregistered securities exchange and allegedly mixing customer funds with its own. The regulatory authority has maintained its perspective that a majority of crypto tokens should be classified as securities. Consequently, crypto exchanges that facilitate the trading of these tokens are required to undergo registration as securities exchanges.

However, Kraken will not go down without a fight and intends to defend itself. The exchange plans to mount a defense by arguing that Congress should be responsible for determining the regulatory framework for cryptocurrency exchanges. They also assert that the SEC’s perspective on digital assets is legally flawed, factually incorrect, and would have detrimental policy consequences. Additionally, Kraken has made it a point to highlight the fact that the lawsuit will not impact its massive client base of over 10 million users.

According to the SEC, Payward Inc and Payward Ventures Inc, the entities behind Kraken, have generated hundreds of millions of dollars in revenue since 2018 by facilitating cryptocurrency transactions, all the while ignoring securities regulations intended to safeguard investors. Furthermore, Kraken has also been accused to have alleged insufficient internal controls and subpar record-keeping practices. The SEC believes this is proven by the mix of customer funds with the company's own finances and the direct payment of operational expenses from customer accounts.

Many Altcoins Left Shaking in Their Boots

The beat down of Kraken’s internal structure and record-keeping practices were not the only things brought up in the SEC lawsuit against the exchange. In fact, many very well known cryptocurrencies were also mentioned.

According to the SEC, Kraken currently makes available for trading crypto assets that have been the subject of prior SEC enforcement actions based upon their status as crypto asset securities, including tokens like Axie Infinity (AXS), Algorand (ALGO), Cosmos (ATOM), Chiliz (CHZ), COTI, Dash (DASH), Filecoin (FIL), Flow (FLOW), Internet Computer (ICP), Decentraland (MANA), Polygon (MATIC), NEAR Protocol (NEAR), OMG Network (OMG), The Sandbox (SAND), and Solana (SOL).Meanwhile, Cardano (ADA) alone was mentioned 60+ times in the lawsuit as well.

In addition to Kraken taking a stand against the SEC’s allegations, U.S. Senator Cynthia Lummis (R-WY) urged Congress to "enact a regulatory framework that establishes unequivocal guidelines for the SEC to differentiate between securities and commodities." She emphasized, "The SEC cannot persist in governing through enforcement alone. Crypto asset firms have consistently sought direction from the SEC, only to face enforcement measures, resulting in needless harm to consumers."

Binance CEO Resigns After His Scuffle With the SEC

Binance, the largest cryptocurrency exchange globally, faced criminal charges related to sanctions violations and breaches of money-transmission regulations. In a significant settlement, the company has agreed to pay $4.3 billion, marking one of the largest penalties ever secured by the United States from a corporate defendant.

Founder Changpeng "CZ" Zhao pleaded guilty in a Seattle court for charges personally linked to him. As part of his plea, he will pay a fine of $50 million and step down from his role as CEO. Richard Teng, formerly a regulator in Abu Dhabi and subsequently the head of Binance's regional markets, will assume the position of CEO.

As part of the plea agreement, Binance will be required to designate an independent compliance monitor for a duration of three years. The exchange must also regularly report its compliance efforts to the U.S. government, in addition to paying the fines. CZ himself is barred for any current or future involvement in the operation or management of Binance.

This resolution in the Binance case marks a significant success for the U.S. government in its actions against big names in the cryptocurrency space. It comes shortly after the conviction of FTX founder Sam Bankman-Fried on charges of fraud and conspiracy related to his cryptocurrency exchange.

Bittrex Global

In August of this year, it was announced that, in order to settle their legal dispute with the U.S. regulator, both Bittrex and Bittrex Global have agreed to pay a total of $24 million. This included $14.4 million in disgorgement, $4 million in prejudgment interest, and $5.6 million in civil penalties.

Bittrex and its co-founder William Shihara settled without even admitting or denying the SEC’s allegations. The SEC's initial claim, dating back to April, asserted that Bittrex and Shihara had been operating as an unregistered national securities exchange, broker, and clearing agency since 2014.


Back in June of this year, the SEC formally charged Coinbase exchange with running its cryptocurrency asset trading platform without proper registration as a national securities exchange, broker, and clearing agency. Additionally, Coinbase was charged with failing to register its crypto asset staking-as-a-service program for offer and sale. Also in its complaint, the SEC said Coinbase made billions acting as the middle man for cryptocurrency buyers and sellers but did not give investors lawful protections while acting as a broker.

With so many of the largest exchanges in the world facing regulatory scrutiny, losing their CEOs, and paying crippling fines, the cryptocurrency community is left wondering who will become the next big player in the space.