The Securities Exchange Commission (SEC) charged the two Kraken crypto exchange subsidiaries, Payward Ventures Inc and Payward Trading Ltd, with failing to register and offering their asset staking-as-a-service program. 

Kraken agreed to immediately cease offering or selling securities through crypto asset staking programs to settle the SEC’s charges. In addition, the company will pay a fine stipulated in $30 million in disgorgement, prejudgment interest, and civil penalties. 

As an immediate response, Kraken will automatically unstaked all U.S. client assets enrolled in the on-chain staking program. The asset will no longer earn staking rewards. 

This applies to all staked assets except Ethereum (ETH), which will be unstaked after the upcoming Shanghai upgrade. After that, U.S. clients will not be able to stake any additional assets, including ETH, according to an official statement by Kraken. 

Kraken will continue to offer staking services for no-U.S. clients through a separate Kraken subsidiary for different clients. 

According to the statement released today by Kraken, staking services for non-U.S. clients will continue uninterrupted. These clients can continue to stake and unstaked assets and automatically earn staking rewards as usual. SEC Chair Gensler said:

Today, we take another step in protecting retail investors by shutting down this unregistered crypto staking program, through which Kraken not only offered investors outsized returns untethered to any economic realities, but also retained the right to pay them no returns at all. All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.

According to the SEC’s complaint, since 2019, Kraken has offered and sold its crypto asset staking services to the general public, whereby Kraken pools certain crypto assets transferred by investors and stakes them on behalf of those investors. Kaken offered these services to U.S. clients in breach of securities terms and regulations of the U.S. Government.

This decision comes after Kraken’s new CEO Dave Ripley told Reuters that he’s not planning to delist any tokens cited as securities by the Securities and Exchange Commission or register with the regulator. SEC Chair Gensler added:

Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws. Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.

U.S. clients will not be able to stake new assets. Previously staked non-ETH assets will be unstaked automatically by the platform. These assets will allegedly return to the client’s spot wallet and will no longer earn rewards.

Kraken will pay rewards in their non-staked form through February 9. As mentioned, all staked ETH will become unstaked after Ethereum’s Shanghai upgrade and will continue to earn rewards until then. Kraken will not change the payout structure until after the Shanghai upgrade. 

The SEC’s investigation was conducted by Laura D’Allaird and Elizabeth Goody, under the supervision of Paul Kim, Jorge G. Tenreiro, and David Hirsch, with assistance from Sachin Verma, Eugene Hansen, and James Connor.

Bitcoin continues its downtrend, retracing below the $22,000 critical level, trading at $21,700. Bitcoin is down 4.8% in the last 24 hours and recorded a 7.8% retracement in the last seven days. 

Featured image from Unsplash, Chart from TradingView.

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