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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

#221

Post by olalonde »

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…

> 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 not what the cryptocurrency people want, so they want the SEC to make it easier for them.

Fighting the SEC isn't easy or cheap either, raising questions about the reluctance to pursue the pathway to compliance. If there truly exists a legal route for a company to become "above-the-board and legal", why hasn't this path been taken? My guess is that that route is just for show, it doesn't exist in practice.

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

#222

Post by pavlov »

fallingknife wrote: post #131
pseg134 wrote: post #118

Earlier quoted context omitted.

They offered an unregistered security for sale. That is against the law.

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…

> "Coinbase even had their IPO approved by the SEC."

The SEC reviews the disclosures being made by the company that's filing for public listing, not the legality of their business model.

You can go look at the Coinbase IPO filing [1]. Under the heading "Summary of risk factors", it reads:

"A particular crypto asset’s status as a 'security' in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, and our business, operating results, and financial condition may be adversely affected."

Nowhere does it say "the SEC has approved our operations, it's all good!" On the contrary, Coinbase is saying that the assets they offer on their exchange may be viewed as securities and it may eventually result in fines or penalties. That's disclosure.

- -

[1] https://www.sec.gov/Archives/edgar/data/1679788/000162828021...

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

#223

Post by RandomLensman »

olalonde wrote: post #221
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…

> 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 not what the cryptocurrency people want, so they want the SEC to make it easier for them. Fighting the SEC isn't easy or cheap either, raising questions about the reluctance to pursue the pathway to compliance. If there truly exists a legal route for a company to become "above-the-board and legal…

Perhaps the market would then be too small and/or the costs too high?

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

#224

Post by lottin »

b112 wrote: post #171
legutierr wrote: post #161

Earlier quoted context omitted.

> 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…

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. I think you meant to say here and unlike banks , because banks absolutely do not need to have s…

Canada follows Basel rules for banking, which are much more complicated than that.

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

#225

Post by mkii »

soks86 wrote: post #147
Animats wrote: post #35

Earlier quoted context omitted.

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!

And legal fees?

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

#226

Post by RandomLensman »

nostrademons wrote: post #163
xalava wrote: post #151

Earlier quoted context omitted.

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.

And now the SEC is going to court, what more do you want?

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

#227

Post by pjc50 »

mattdesl wrote: post #214
pavlov wrote: post #193

Earlier quoted context omitted.

There are at least hundreds of thousands (probably millions) of securities that have been properly registered in the USA: stocks, corporate bonds, private offerings, and many other kinds of financing structures. It’s not that hard since obviously all kinds of issuers can figure it out. The crypto people want to pretend their tokens are something completely different, so they’re not willing to use the existing process…

How do you propose Bitcoin, or Ethereum, or any other decentralized & peer-to-peer asset be registered as a security? Coinbase and Kraken argue that there is no clear path toward registering these assets within the current framework. For an example, some of the stringent per-transaction KYC/AML reporting requirements in traditional financial systems are often incompatible with today’s mechanisms of distributed ledger…

> some of the stringent per-transaction KYC/AML reporting requirements in traditional financial systems are often incompatible with today’s mechanisms of distributed ledgers

Yes - which makes the ledgers illegal.

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

#228

Post by RandomLensman »

fallingknife wrote: post #133
bitvoid wrote: post #111

Earlier quoted context omitted.

If the FDA didn't exist, how many more harmful drugs would there be? Would those harmful drugs that had approval retracted still be out there being prescribed? Just because the FDA is not perfect does not mean that it's a net negative.

Easy to have the best of both worlds, though. FDA can continue to collect and publish data on safety and efficacy of medications which is incredibly useful and absolutely worth the tax money. But if you want to take something not approved, then they should have no right to tell you that you can't take the risk.

And if you get seriously sick from that we let you die by the wayside?

The first way to take advantage there is to outsource the cost of dangerous experiments to (sometimes) desperate people and then to society at large for picking up the pieces.

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

#229

Post by 5ersi »

vasco wrote: post #196
legutierr wrote: post #161

Earlier quoted context omitted.

> 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…

> 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. Banking h…

Fractional reserve banking is exactly how this works, albeit banks do not "invest" the customers' money, instead they lend it.
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