Kraken Entities face Allegations by SEC
The Securities and Exchange Commission has charged Payward Ventures, Inc. and Payward Trading Ltd., both of which are known collectively as Kraken, with failing to register the offer and sale of their crypto asset staking-as-a-service program. This is a process by which investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent. The SEC has charged both of these entities with failing to register the offer and sale of their program.
As part of the agreement to resolve the SEC’s allegations against them, the two Kraken entities consented to immediately stop offering or selling securities through crypto asset staking services or staking programs and to pay a total of $30 million in disgorgement, prejudgment interest, and civil penalties. In addition, they agreed to stop offering or selling securities as soon as possible.
According to the complaint filed by the SEC, Kraken has been offering and selling its “staking services” for cryptocurrencies to the general public since 2019. These “staking services” involve Kraken pooling certain cryptocurrencies that have been transferred by investors and staking them on behalf of those investors.
Staking is a process in which investors lock up – or “stake” – their crypto tokens with a blockchain validator with the goal of being rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain.
This is done in the hope that the investors will be rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain. When investors hand over their tokens to companies that offer staking as a service, not only do they give up control of those tokens, but they also assume the risks associated with using those platforms and have very little protection.
According to the allegations contained in the complaint, Kraken promotes the idea that its staking investment program provides users with an intuitive interface and benefits that result from the company’s efforts on the investor’s behalf. These benefits include Kraken’s strategies to obtain regular investment returns and payouts.
Whether it’s through staking-as-a-service, lending, or any other means, crypto intermediaries need to provide the proper disclosures and safeguards required by our securities laws when offering investment contracts in exchange for investors’ tokens,” said Gary Gensler, the chair of the SEC.
“This applies whether it’s through staking-as-a-service, lending, or any other means.” “The action taken today should make it abundantly clear to the market that providers of staking-as-a-service are required to register and provide complete, fair, and truthful disclosure in addition to investor protection, “In case after case, we’ve seen the consequences when individuals and businesses tout and offer crypto investments outside of the protections provided by the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“Investors lack the disclosures they deserve and are harmed when they don’t receive them,” “Today, we take another step in protecting retail investors by shutting down this unregistered crypto staking program.
Through this program, Kraken not only offered investors outsized returns untethered to any economic realities, but it also retained the right to pay them no returns at all. This program will no longer be available. Throughout the entire process, it gave them no insight into, among other things, its financial condition or whether or not it even had the means to pay the marketed returns in the first place.
Payward Ventures, Inc. and Payward Trading, Ltd., without admitting or denying the allegations in the SEC’s complaint, consented to the entry of a final judgment, subject to the approval of the court, that would permanently enjoin each of them from violating Section 5 of the Securities Act of 1933 and permanently enjoin them and any entity they control from, directly or indirectly, offering or selling securities through the staking program. In addition to ceasing the staking program and
Laura D’Allaird and Elizabeth Goody were the ones in charge of the investigation for the SEC. They were assisted by Sachin Verma, Eugene Hansen, and James Connor in their work. Paul Kim, Jorge G. Tenreiro, and David Hirsch were the ones in charge of supervising the investigation.
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