The U.S. Securities and Exchange Commission (SEC) has thrust cryptocurrency exchange Kraken into the legal spotlight, filing a substantial 90-page lawsuit on Monday. This legal maneuver places Kraken among a select group of crypto heavyweights facing increased scrutiny from regulatory authorities.

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SEC Allegations

The SEC's lawsuit alleges Kraken of multiple securities law violations and accuses the exchange of intertwining customer funds with corporate assets in ways that pose significant risks. Specifically, Kraken is accused of operating as an unregistered securities exchange, broker, dealer, and clearing agency since 2018. 

The SEC claims that Kraken made substantial profits by unlawfully facilitating the buying and selling crypto asset securities. The complaint contends that Kraken's business practices involved commingling customer assets with its own, reaching a staggering amount of up to $33 billion. This commingling, according to the SEC, exposed customers to a "significant risk of loss." 

The SEC further claims Kraken paid operational expenses directly from accounts containing customer assets, highlighting the exchange's alleged deficient internal controls.

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Kraken's Response

Kraken is reportedly set to mount a robust defense against the SEC's claims. The exchange asserts that Congress should be the entity determining how to regulate cryptocurrency exchanges. It categorically rejects the SEC's view of digital assets as legally incorrect, factually false, and disastrous as a matter of policy. 

Kraken founder Jesse Powell characterizes the SEC's actions as an "assault on America" and warns of the potential exodus of companies from the country.

Further, Kraken's current CEO, Dave Ripley, voices strong disagreement with the SEC's allegations, stating the company's commitment to vigorously defending its position. Ripley emphasizes the need for regulatory clarity in the U.S., suggesting that congressional action is essential to address the existing ambiguity.

The SEC's aggressive stance in the crypto space has triggered a substantial backlash. Critics argue that the industry operates within a legal system lacking clear legislation for cryptocurrencies and digital asset exchanges. 

Sen. Cynthia Lummis responded to the lawsuit, saying the SEC cannot continue to rule by enforcement.