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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

#161

Post by legutierr »

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…

> And given that we've seen exchange after exchange fail to perform basic tasks like "don't commingle customer funds," I have a hard time feeling any sympathy for cryptocurrency companies here.

There is nothing per se nefarious about co-mingling customer funds, provided that you are otherwise compliant with the law.

Banks, for instance, don't just co-mingle customer funds, they invest those funds on their own behalf and reap the profits for themselves. Sometimes a bank will share a portion of its profit with its customers, in the form of intest; more often, the bank pays little or no interest, and actually charges the customer fees. A bank will risk its customers' money, and its customers will pay for that privilege.

Kraken has been operating under the money transmitter licensing scheme for a decade, and like banks, money transmitters don't have any legal requirement to segregate customer funds—although they do have the responsibility to maintain sufficient cash balances or liquid investments to cover all of what they owe to customers.

Whether Kraken is breaking the law is something that will likely be decided by a court. The SEC asserts that Kraken has broken the law, but it is not up to the SEC to decide—it is up to the courts.

It is not illegal to operate a spot commodities exchange without approval from the SEC, unless those commodities are also the kinds of securities the trading of which require SEC approval. It is also not illegal to operate as an unlicensed broker-dealer of non-security commodities, or as an unlicensed custodian of non-security commodities. The SEC only has jurisdiction over securities.

It is not in the slightest bit clear yet that the crypto tokens for sale on Kraken are in fact securities of any kind. The SEC asserts that they are, but at this point it is just an assertion. The SEC will have to win in court.

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

#162

Post by austhrow743 »

YeBanKo wrote: post #153
austhrow743 wrote: post #148

Earlier quoted context omitted.

Shut down.

Why? Call it a gamble and let operate under casino license. The issue is only when cryptocurrency masquerades as investment.

I would be shocked to learn that claiming "casino" is enough to get the SEC off of your back and I would expect to see a lot more casino licenses if it did.

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

#163

Post by nostrademons »

xalava wrote: post #151
fallingknife wrote: post #131

Earlier quoted context omitted.

But the only time that a judge has ruled on whether or not a crypto token is a security is in the XRP case, and it ruled that it was not (at least when it was sold on exchanges). This is not comparable to a ponzi scheme where the legality is not in question at all. And let's not ignore the fact that these exchanges have done this right out in the open for around 10 years now. Coinbase even had their IPO approved by t…

The SEC has been consistently saying that most crytoassets were securities. The only acknowledged exception, for which it had contradictory statements, is if a protocol is "sufficiently decentralized" such as Bitcoin and Ethereum.[1] On the IPO, the registration is independant from such pursuits as the SEC raised during their approval. [2] That said, there would have been better course of action to protect consumers,…

The SEC saying it is very different from a court saying it. The executive branch can say anything it wants to, but it's the judicial branch's job to interpret the law.

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

#164

Post by landemva »

cft wrote: post #49
SeanAnderson wrote: post #42

Earlier quoted context omitted.

Well, Gary Gensler is on record in 2023 saying Bitcoin is not a security. So, I don't think it's accurate to say "probably all." In previous years Ethereum had also been described as not a security, but that opinion seems to have shifted with time. It's still not super clear to me why he says Bitcoin is not a security, but that Ethereum would be a security. I'm fine with whatever ruling as long as I can understand ho…

Also Ethereum switched to proof of stake. Which means that the "stakeholders" (shareholders) are voting what transactions go into the ledger. Bitcoin is proof of work still.

Hmmm, somewhat different than an election voting.

With proof of stake, a staker eventually gets an opportunity to follow the validation rules and put some transactions in a block. If they don't properly follow the rules, they will get slashed. If they don't submit a block when it is their turn, they will get gently slashed.

In proof of work it is a free-for-all with whoever has the most hashing power winning block submission more frequently. If they submit a block that doesn't follow the validation rules they keep all of their (physical silicon) hashing power and the block is ignored.

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

#165

Post by ChadNauseam »

cft wrote: post #49
SeanAnderson wrote: post #42

Earlier quoted context omitted.

Well, Gary Gensler is on record in 2023 saying Bitcoin is not a security. So, I don't think it's accurate to say "probably all." In previous years Ethereum had also been described as not a security, but that opinion seems to have shifted with time. It's still not super clear to me why he says Bitcoin is not a security, but that Ethereum would be a security. I'm fine with whatever ruling as long as I can understand ho…

Also Ethereum switched to proof of stake. Which means that the "stakeholders" (shareholders) are voting what transactions go into the ledger. Bitcoin is proof of work still.

A majority of bitcoin miners can also prevent transactions from entering the ledger at cost to themselves, just like Ethereum stakers. It's a misconception that Ethereum works via stakers voting the way people normally think of voting.

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

#166

Post by cool_dude85 »

palmfacehn wrote: post #158
pmulard wrote: post #94

Earlier quoted context omitted.

The FDA has no place in a free market. If people trust a company which poisons their food, 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 FDA... How good is that?! -- I'd much rather pool our money into a commission that does this fo…

You have presented false alternatives. Private regulation can exist inside of a free market. Consumers and producers of food or financial products can voluntarily participate with private ratings agencies. These standards can be higher or lower, based upon market preferences. The existence of a state backed monopoly is widely recognized as prohibitive to competition. State monopolies create issues around corruption,…

Why's it surprising to see anti-market sentiment when we've been given a very clear look at how the free market has operated in the crypto space sans government regulation? The whole ecosystem has been dominated by grifts, outright scams, rug pulls, ponzis, unregulated gambling, etc. etc. with no end in sight. Why didn't the free market step up?

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

#167

Post by ChainOfFools »

Quindecillion wrote: post #124
ChainOfFools wrote: post #116

Earlier quoted context omitted.

2022: https://www.bangkokpost.com/thailand/general/2455120/thousan ... 2023: (much smaller scale than above but still stealing over USD $150000 a year in electricity) https://www.bangkokpost.com/thailand/general/2569745/crypto- ... This time around the authorities estimate that they've only found 1%, not 10% as they had before, of the illegal mining done in their country.

100 million baht in 2 years? So about $1.5m USD in a year. That's not exactly "staggering" or significant in the context of the Bitcoin network. Unlikely that such operations have any meaningful control over the network or liquidity, even if it's just 1% of what's known. You seem to think that these sorts of operations are somehow connected in a large coordinated cartel the controls the industry, but given that they'…

So you read the article, as well as the quote that I put above and therefore you know that this is estimated to be only 1% of the illegal mining done in _Thailand_ alone, and this in just the past couple of years when visibility of cryptocurrency has been well established even in non-tech circles.

It's been happening ever since crypto mining, especially Bitcoin, existed. Long before most anyone knew what mining was, or knew to look for it being done stealrhily on someone elses's dollar ...or baht. I didn't say I condone stealing electricity for any purpose, but there's a particular hypocrisy with crypto people who claim that mining costs chase the hash rate and difficulty adjustments ensure that everyone has a fair shot at winning a coin base. Obvious nonsense.

It's hypocrisy that crypto people, who like to think of themselves as some sort of sophisticated financial visiinary class, are so hopelessly naive that it would never even occur to them to consider that being rationally self interested will inevitably and swiftly devolve into outright theft, and the obfuscated consolidation of power favors the venal corrupt and those who are willing to benefit from wholesale theft, which is why such people are entrenched at the center of this so-called decentralized system.

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

#168

Post by adastra22 »

xalava wrote: post #151
fallingknife wrote: post #131

Earlier quoted context omitted.

But the only time that a judge has ruled on whether or not a crypto token is a security is in the XRP case, and it ruled that it was not (at least when it was sold on exchanges). This is not comparable to a ponzi scheme where the legality is not in question at all. And let's not ignore the fact that these exchanges have done this right out in the open for around 10 years now. Coinbase even had their IPO approved by t…

The SEC has been consistently saying that most crytoassets were securities. The only acknowledged exception, for which it had contradictory statements, is if a protocol is "sufficiently decentralized" such as Bitcoin and Ethereum.[1] On the IPO, the registration is independant from such pursuits as the SEC raised during their approval. [2] That said, there would have been better course of action to protect consumers,…

Important nit: they ruled Ethereum was a security, as the initial issuance was at least partially a pre-sale. They just decided in that one case to explicitly not go after Ethereum. The only non-security exception they've named was bitcoin.

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

#169

Post by ahallock »

kadoban wrote: post #68
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.

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

Interesting. I thought government was there to serve the people not to be an adversary. No wonder our tax code is so convoluted.

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

#170

Post by discodave »

legutierr wrote: post #161
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…

> And given that we've seen exchange after exchange fail to perform basic tasks like "don't commingle customer funds," I have a hard time feeling any sympathy for cryptocurrency companies here. There is nothing per se nefarious about co-mingling customer funds, provided that you are otherwise compliant with the law. Banks, for instance, don't just co-mingle customer funds, they invest those funds on their own behalf…

> For what its worth, banks don't just co-mingle customer funds, they invest those funds on their own behalf and reap the profits for themselves.

And that is why banks are regulated, must register, follow certain rules etc.

> Kraken has been operating under the money transmitter licensing scheme for a decade

Yeah, but that doesn't give them a license to operate a securities exchange, or a bank. How many other money transmitters (that are not registered securities exchanges or banks) have 'tokens for sale' like Kraken?

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