The U.S. Commodity Futures Trading Commission has slapped a US$1.25 million fine on Kraken, one of the largest cryptocurrency exchanges in the U.S., for Commodity Exchange Act (CEA) violations, the CFTC announced yesterday.
- The CFTC, in its settlement with Payward Ventures Inc., the San Francisco-based company doing business under the name Kraken, said the crypto exchange had illegally offered margined retail commodity transactions in cryptocurrencies and failing to register as a futures commission merchant. Aside from the civil monetary penalty, the CFTC has also asked Kraken to cease and desist from future violations of the CEA.
- The CFTC found that, from June 2020 to JUly 2021, Kraken offered margined retail commodity transactions in crypto to U.S. customers that were not eligible contract participants. Kraken also acted as the sole margin provider and maintained physical or constructive control over all assets during margin trades, the order said. Kraken’s margin trading feature allowed customers to buy an asset using margin where Kraken supplied the crypto or fiat currency for payment to the seller. Customers had to exit their positions and repay the assets within 28 days, failing which, Kraken could unilaterally liquidate the margin position. The exchange could also forcefully liquidate the position if the value of the collateral fell below a certain threshold percentage.
- Kraken updated its margin trading policy in June this year, but the CFTC claims that until then the exchange was operating outside the law since the transactions did not take place on a designated contract market. By soliciting and accepting customer orders, money or property for retail commodity transactions, Kraken illegally operated as an unregistered futures commission merchant, the CFTC noted.
- “This action is part of the CFTC’s broader effort to protect U.S. customers,” said Vincent McGonagle, CFTC’s acting director of enforcement, in the statement. “Margined, leveraged or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations.”
- Founded in 2011, Kraken is has an estimated valuation of US$10 billion while its 24-hour trading volume stands at US$1.2 billion. The exchange operates in 190 countries and has over 70 listed tokens. Given the massive size of the company, the penalty levied is relatively small. Last month, crypto exchange BitMEX agreed to pay a penalty of US$100 million to settle charges brought by the CFTC and Financial Crimes Enforcement Network.