US CFTC fined Kraken $ 1.25 million for allegedly illegal offering

The United States Commodity Futures Trading Commission (CFTC) is asking the Kraken crypto exchange to pay more than $ 1 million in civil fines related to allegations that the exchange violated the Commodity Exchange Act.

In a statement dated September 28. The CFTC said Kraken (trading under the name Payward Ventures) has not registered as a futures commission dealer and is illegally offering retail investors margin trading in digital assets. The order requires the company to pay a $ 1.25 million fine and “refrain from further violations of the Commodity Exchange Act,” the law that gives the CFTC much of its legal powers in commodity trading and futures .

“This move is part of the CFTC’s broader efforts to protect US customers,” called Vincent McGonagle, Deputy Director of the CFTC. “Trading in margin, leveraged or funded digital assets offered to US retail customers must be in accordance with all applicable laws and regulations on properly registered and regulated exchanges.”

US CFTC fined Kraken $ 1.25 million for allegedly illegal offering
US CFTC fined Kraken $ 1.25 million for allegedly illegal offering

The CFTC case claims that Kraken “offered retail investors to trade digital assets on margin” for unqualified US customers from June 2020 to July 2021. Kraken has since changed its margin trading policy, but by June 2021 clients had to close or liquidate their positions within 28 days. According to the CFTC, these actions constituted an illegal business activity for the company as the transactions did not take place in a specific contract market.

“If the repayment is not made within 28 days, Kraken could unilaterally force the liquidation of the margin position”, claimed the CFTC. “Kraken could also initiate a forced liquidation if the value of the collateral falls below a certain threshold of the total outstanding margin. As a result, the actual delivery of the acquired assets did not take place.”

Enforcement is seemingly small compared to the size of a cryptocurrency exchange like Kraken, with some estimates putting the company at a valuation of $ 10 billion and the fine being 0.0125% of that. Instead, the CFTC and the Financial Crime Control Network fined the BitMEX crypto exchange $ 100 million in August.

Dan Berkovitz, The current CFTC commissioner and future General Counsel of the Securities and Exchange Commission previously described the former’s enforcement efforts in the cryptocurrency space as “aggressive,” but also said that the agency “doesn’t necessarily seek more authority without more resources.” Berkovitz will leave the CFTC in October while US President Joe Biden has appointed Kristin Johnson and Christy Goldsmith Romero to fill two of the agency’s vacant positions.

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