In Brief:
- CFTC Imposes $1.25 million fine on Kraken for violating US law.
- Kraken violated Commodity Exchange Act and operated as an unregistered futures commission merchant.
The Commodity Futures Trading Commission(CFTC) imposed A $1.25 million fine on Kraken for illegally offering margined retail commodity transactions in digital assets, including Bitcoin, and failing to register as a futures commission merchant (FCM).
The order requires Kraken to pay the fine for civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA).
The CFTC stated Kraken cooperated with the investigation and was “proactive” in seeking compliance assistance. Kraken did not admit or refute the CFTC’s conclusions. The company pledged to stop violating the law in the future.
Why CFTC Targeted Kraken
According to the US Commodity Futures Trading Commission (CFTC), Payward Ventures Inc, doing business as Kraken, offered margin retail commodity transactions in digital assets to U.S. customers who were not eligible from June 2020 to July 2021. The company also pretended to be a futures commission merchant without registering with the agency.
The CFTC alleges in its case that Kraken “offered margined retail commodity transactions in digital assets” to ineligible U.S. customers from June 2020 to July 2021. However, Kraken changed its policy on margin trading in July 2021.
If repayment was not made within 28 days, Kraken could unilaterally force the margin position to be liquidated. It could also initiate a forced liquidation if the value of the collateral dipped below a certain threshold percentage of the total outstanding margin. As a result, the actual delivery of the purchased assets failed to occur.
As earlier customers were forced to close or settle their positions within 28 days. According to CFTC, these actions represented the company operating illegally as the transactions did not occur on a designated contract market.
In a statement, a Kraken representative stated, “We are committed to working with regulators to try to ensure that the rules governing digital assets establish an equal playing field globally.”
In August CFTC had charged BitMEX with a $100 million civil penalty case which they agreed to pay. BitMEX was charged for allowing illegal trades and also for violating anti-money laundering laws.
However, CFTC Commissioner Dawn Stump said existing agency guidance does not go far enough to establish clear standards for cryptocurrency firms seeking to conduct retail commodity transactions involving specific digital assets in a concurring statement regarding the settlement. He called the decision “uncharted territory.”
