Kraken to Close US Crypto-Staking Service, and Pay USD 30M Fine to SEC
US-based cryptocurrency exchange Kraken has agreed to close its
US-based cryptocurrency staking program as agreed upon with the US Securities
and Exchange Commission (SEC) to settle for the unregistered offer of its
staking services. The regulator has also indicated that the exchange will pay
USD 30 million towards disgorgement, prejudgment interest, and civil penalties.
USD 30 Million Fine for Unregistered Staking Services
Kraken, one of the largest US-based cryptocurrency exchanges,
has agreed to pay USD 30 million in disgorgement, prejudgment interest, and
civil penalties to the US Securities and Exchange Commission (SEC) as part of a
settlement for the unregistered offering of staking services. The settlement,
made public on February 9, 2023, also includes closing the US-based staking
program that Kraken had been offering to its customers.
Gary Gensler, chair of the SEC, explained that virtual asset
service providers need to exercise compliance when offering these investment
tools to their customers. Gensler stated:
"Whether it’s through staking-as-a-service, lending, or
other means, crypto intermediaries, when offering investment contracts in
exchange for investors’ tokens, need to provide the proper disclosures and
safeguards required by our securities laws."
Further, Gensler declared that the action by the SEC means that
every staking as a service provider must now "register and provide full,
fair, and truthful disclosure and investor protection." Gurbir S. Grewal,
Director, SEC, division of enforcement, also disapproved the action of Kraken’s
staking program, stating it provided zero insight into the condition of the
company to pay the marketed returns.
The decision has a larger implication, as all the staked crypto
funds from customers will be automatically unstaked, with the exception of
ether, which will be decided after the Shanghai update. The staking rewards
will be awarded on a prorated basis for February 9.
The Future of Staking
The settlement is public after Brian Armstrong, CEO of
Coinbase, voiced
his concerns on February 8 about rumors that indicated the SEC was seeking to
ban cryptocurrency staking for retail customers. Armstrong clarified that, for
him, staking was not a security issue and the move "would be a terrible
path for the US if that were allowed to happen."
Coinbase, another US-based exchange, also offers cryptocurrency
staking options for at least six different cryptocurrency networks, including
Algorand, Cosmos, Ethereum, Tezos, Cardano, and Solana.
Kraken also reported that while the staking offer will close in
the US, the company will continue providing staking services to its customers
in other countries through a different subsidiary.
What is your take on Kraken’s USD 30 million settlement with the
SEC? Please post your comments.
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