CFTC hits Kraken with fines of $1.25 million over alleged illegal bid


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The US Commodity Futures Trading Commission, or CFTC, is requiring cryptocurrency exchange Kraken to pay more than $1 million in civil fines related to allegations that the exchange violated the Commodity Exchange Act.

In a statement issued on September 28, the CFTC said the US-based Kraken exchange — which operates under the name Payward Ventures — has failed to register as a futures commission trader and is illegally offering retail margin commodity transactions in assets. digital. It requires the exchange to pay a $1.25 million fine and “cease and desist from further violations of the Commodity Exchange Act,” the law under which the CFTC derives much of its enforcement power over commodity and futures trading.

“This action is part of the CFTC’s broader effort to protect US customers,” said Vincent McGonagall, CFTC’s acting director of enforcement. “Marginal, leveraged or funded digital assets offered to US retail clients must be traded on properly registered and regulated exchanges in accordance with all applicable laws and regulations.”

The CFTC case claims that Kraken “offered retail commodity margin transactions in digital assets” to ineligible US clients from June 2020 to July 2021. Kraken has since changed its policy on margin trading, but until June 2021 clients had to close or settle their positions within 28 days. According to the CFTC, these actions represented the company operating illegally because the transactions did not occur in a specific contract market.

The CFTC claimed: “If payment is not made within 28 days, Kraken could unilaterally force the liquidation of a margin position.” “Kraken can also initiate a forced liquidation if the value of the collateral falls below a certain threshold percentage of the gross margin outstanding. As a result, physical delivery of the assets purchased fails.”

Related: US crypto exchange Kraken eyes public listing in 2022

The enforcement action appears to be small compared to the size of a major crypto exchange like Kraken – some estimates put the company at $10 billion, with the fine being 0.0125% of that value. In return, the CFTC and the Financial Crimes Enforcement Network fined $100 million in crypto derivatives in August.

Dan Berkowitz, the current commissioner of the CFTC and soon-to-be general counsel of the SEC, described past enforcement actions in the crypto space as “aggressive,” but also said that the agency “is not necessarily looking for more power without more resources.” He will be leaving. Berkowitz CFTC in October while US President Joe Biden chose Kristen Johnson and Christy Goldsmith Romero to fill two empty commission seats at the agency.