Cryptocurrency platform Kraken has agreed to a $30 million settlement with the Securities and Exchange Commission. Cryptocurrency The settlement will force Kraken to unwind a program that offered investment returns to US users who committed their digital assets to the company.
The program, known as “staking,” was alleged by the SEC to be an unregistered offer and sale of securities. According to the SEC, Kraken failed to adequately disclose the risks of participating in the program.
The SEC has taken aim at a key function of virtual currencies in a new complaint: the practice of staking. By contributing their cryptocurrency tokens, investors help to validate transactions and may be rewarded with additional tokens. The Best Crypto However, the SEC alleges that Kraken failed to notify users about the lack of protections in this process.
The SEC has filed a complaint against Kraken for failing to disclose the lack of protections for investors who contribute their cryptocurrency tokens to help support the healthy function of the virtual currency. When investors agree to contribute their tokens in this way, they may be rewarded with additional tokens, but the SEC alleges that Kraken failed to notify users about the lack of protections in place.
The SEC’s complaint alleges that investors in the Kraken program were not given any information about the program’s financial condition or whether the defendants had the means to pay the high returns that were promised.
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In fact, per the Kraken Terms of Service, the defendants retained the right not to pay any investor returns at all. Gurbir Grewal, director of the SEC’s enforcement division, released a statement saying that the Kraken program offered “outsized returns untethered to any economic realities.”
Coinbase, for example, offers rewards for customers who store their digital assets with the company.
As part of the agreement resolving the charges, Kraken said Thursday in a blog post that on top of the $30 million payment, it would “automatically unstake all U.S. client assets” that were a part of the program.
Staking and the associated rewards will continue to be offered for non-US customers, the company said.
This move by Kraken could inspire other exchanges to do the same, potentially shaking up the staking landscape.
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