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SEC charges Kraken for operating as an unregistered securities exchange

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Re: SEC charges Kraken for operating as an unregistered securities exchange

#141

Post by YeBanKo »

jcranmer wrote: post #73
ascendantlogic wrote: post #65

I feel like this won't end up going well for the SEC. This whole methodology of telling exchanges "I don't know, you figure it out" when they ask for clarity and then turning around and suing them for not figuring it out is extremely shaky legal ground.

Matt Levine I think put it best: if Bernie Madoff were to go to the SEC and ask them "I don't know how to run a Ponzi scheme legally, can you please update the guidelines to make it easier", of course the SEC is going to refuse. And the situation with cryptocurrencies seems to be broadly similar: there's actually a pretty clear answer as to what would need to be done to be fully above-the-board and legal, it's just n…

> "don't commingle customer funds"

This seems to be with accounting, not securities.

> there's actually a pretty clear answer as to what would need to be done to be fully above-the-board and legal

What needs to be done to be fully legal?

Re: SEC charges Kraken for operating as an unregistered securities exchange

#142

Post by NikolaNovak »

jongjong wrote: post #80
jcranmer wrote: post #73

Earlier quoted context omitted.

Matt Levine I think put it best: if Bernie Madoff were to go to the SEC and ask them "I don't know how to run a Ponzi scheme legally, can you please update the guidelines to make it easier", of course the SEC is going to refuse. And the situation with cryptocurrencies seems to be broadly similar: there's actually a pretty clear answer as to what would need to be done to be fully above-the-board and legal, it's just n…

The SEC has no place in a free market. If people trust a company which co-mingles funds, they should be punished for misplacing their trust. Both the scammer and the scammed deserve a share of the punishment. Life naturally punishes the scammed already and teaches them a lesson at the same time... Without the help of the SEC... How good is that?! If my startup fails because I hired the wrong people, I take the full b…

But at its best, government agencies are exactly that.

It's free people in a free market learning from their mistakes and saying "well THAT sucked! Let's not do THAT again!". But you know, more efficiently, as is the market's want - rather than re learning the same lesson over and over and over again, we write it down and codify it.

Of course, that's regulations at their best. Regulations at their worst are pretty awful too! But given your post was about the very existence of regulations and their related agencies, I thought I'd offer a perspective :).

Re: SEC charges Kraken for operating as an unregistered securities exchange

#143

Post by lcnPylGDnU4H9OF »

hn_throwaway_99 wrote: post #125
kadoban wrote: post #68

Earlier quoted context omitted.

Law enforcement has no obligation to explain the laws to you.

Many organizations in law enforcement have explicit programs to do exactly that. Here is one from the IRS: https://www.irs.gov/retirement-plans/determination-opinion-a... Basically, the rules for whether a retirement plan meets the qualifications for favorable tax treatment are highly complex, so a plan sponsor can ask the IRS to determine if the structure of the plan fits the rules by asking for a "Favorable Determi…

Perhaps this is nitpicking too much but now I wonder on the point of obligation. Is this IRS function required per some law or other mandate?

Of course, it seems best that a regulating body is clear about their regulations. It seems weird that’s even in contention, to be honest. But I do wonder about an obligation to do so.

Re: SEC charges Kraken for operating as an unregistered securities exchange

#144

Post by soks86 »

starttoaster wrote: post #23
fredgrott wrote: post #19

Earlier quoted context omitted.

Checking details of company registration is not the same as a background checK. Let me explain the difference.. I had a series 63 license from The SEC. Here is what I submitted: 1. Background info form to FBI which was checked. 2. Fingerprint form Far different when you register a company as public. Per their own docs they review accounting not background, see https://www.sec.gov/divisions/corpfin/cffilingreview

This does not seem to me to be strictly true, at least operating in the space of payments industries. They go very deep into technical details as far as justifying a company's value. Such that in an open source company that I work for, we had to provide metrics as deep as like popularity and contributor-base growth in the open source ecosystem over time. That does not seem like an accounting review, that seems more b…

Securities law is about disclosure. Registering is about filing disclosures.

This is all about disclosure, nothing at all with business function.

I'm sure there's some math behind calculating certain values for disclosure, super important. The importance of this is because the numbers have to reflect reality for the purposes of proper disclosure.

Disclosure.

If your business is to rob trains, not the SEC's business. So long as you disclose your finances you can sell shares of your train robbing business. The criminal conspiracy charges you'll face will have nothing to do with the SEC and everything to do with your state government or the FBI if you messed with interstate commerce.

Re: SEC charges Kraken for operating as an unregistered securities exchange

#145

Post by nl »

lmm wrote: post #132
landemva wrote: post #126

Earlier quoted context omitted.

> I feel pretty good about considering stable coins securities. Take that further to airline points and Chipotle points. If the stablecoin does not provide returns to the holder, how is it an investment contract?

> Take that further to airline points and Chipotle points. No-one is holding those with an "expectation of profit". Whereas essentially the only use of "stablecoins" is as investment schemes; even if someone isn't expecting the value of their stablecoin to rise against USD, they're expecting it to rise against something.

In general I'm on the "many crypto tokens are securities" side here. However this isn't right:

> Whereas essentially the only use of "stablecoins" is as investment schemes; even if someone isn't expecting the value of their stablecoin to rise against USD, they're expecting it to rise against something.

Stablecoins are very frequently used as transfer tokens for remittances, wages and ecommerce. We pay overseas staff in USDC for example (it's quicker and easier than bank transfers).

Re: SEC charges Kraken for operating as an unregistered securities exchange

#146

Post by lmm »

Ferret7446 wrote: post #28
kklisura wrote: post #24

Earlier quoted context omitted.

I find following more troubling: > As alleged in the complaint, Kraken commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash. Didn't FTX/SBF do same?

Is that inherently problematic, as long as they're accounting properly?

If customers are aware of it, maybe not. But if they're representing to customers that these are their funds, expressly or implicitly claiming that they're held separately, then that would be inherently problematic - it means those customers are a lot worse off if Kraken goes bankrupt, because if Kraken has been paying operational expenses out of those accounts then their suppliers etc. can go after those accounts. (And no, the regulators won't treat it as a "no harm no foul" just because Kraken didn't in fact go bankrupt - they were exposing their customers to risk even if that risk didn't come to pass)

Re: SEC charges Kraken for operating as an unregistered securities exchange

#147

Post by soks86 »

Animats wrote: post #35
Scott_Sanderson wrote: post #3

Kraken has been trading crypto coins since 2011. Why did it take the SEC so long to bring this suit?

The SEC seems to bring about 2 or 3 crypto enforcement actions per month.[1] They're still working down the ICO backlog. Mostly they've been going after issuers and out and out theft. After FTX, political support for crypto deregulation dropped to near zero. FTX, remember, was lobbying for a bill that would allow all the things for which Kraken is now in trouble. That is going absolutely nowhere now. Also, the SEC, C…

Fun fact! Stoner Cats 2, from the list of enforcement actions, paid a settlement that was about 10-20% of what they made from their sales!

NFTs as an investment offering are still a good way to make money it seems!

Re: SEC charges Kraken for operating as an unregistered securities exchange

#148

Post by austhrow743 »

YeBanKo wrote: post #141
jcranmer wrote: post #73

Earlier quoted context omitted.

Matt Levine I think put it best: if Bernie Madoff were to go to the SEC and ask them "I don't know how to run a Ponzi scheme legally, can you please update the guidelines to make it easier", of course the SEC is going to refuse. And the situation with cryptocurrencies seems to be broadly similar: there's actually a pretty clear answer as to what would need to be done to be fully above-the-board and legal, it's just n…

> "don't commingle customer funds" This seems to be with accounting, not securities. > there's actually a pretty clear answer as to what would need to be done to be fully above-the-board and legal What needs to be done to be fully legal?

Shut down.

Re: SEC charges Kraken for operating as an unregistered securities exchange

#149

Post by soks86 »

sillysaurusx wrote: post #27
steve_taylor wrote: post #22

Earlier quoted context omitted.

Why can’t the Bitcoin payouts be made directly to Bitcoin wallets? Did no one learn from Mt Gox?

Well, Kraken was the conduit through which payments were going to be made. Japan is … fastidious … to the law. I think they wanted to deal with an actual entity. Hopefully this legal albatross won’t spook them.

Glad to see someone talk about this.

It's a bit of a pain. They limited your choices and now the limited choices are facing legal scrutiny.

The Japanese lawyer representing Mt. GOX customers is also collecting fees this entire time from the pool of customer funds.

Re: SEC charges Kraken for operating as an unregistered securities exchange

#150

Post by fallingknife »

jcranmer wrote: post #79
lettergram wrote: post #67

Earlier quoted context omitted.

https://www.nyse.com/publicdocs/nyse/regulation/nyse/sea34.p... You can read the act yourself, a cryptocurrency (depending on the type) is not a security by the definition provided. Nor does the cryptographic token have an issuer. Quite literally, most crypto has none of what’s defined under the SEC scope. That said, sure _some_ of the crypto tokens would could count as securities. But even then it’s not clear the ex…

> The term ‘‘security’’ means any [...] transferable share Funny, that describes virtually every cryptocurrency token I'm aware of. But for all practical purposes, you shouldn't be looking at the definition in the law itself, you should be looking at the case law behind it, where of course the ruling test is the Howey test... "an investment of money in a common enterprise with a reasonable expectation of profit deriv…

How is it a "transferable share"? When I buy a crypto token what do I own a share of? And you can't say "a share of the total supply of tokens" because by that definition anything is a security, e.g. a gold coin would be a share of the total supply of gold coins. And it has been clearly decided by the courts that such things are not securities. Even things that are much more "security" like, e.g. a piece of a syndicated bank loan, are not considered securities.
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