Kraken, a company owned by Payward Ventures, Inc., and Payward Trading Ltd., has been SEC charged with failing to register the offer and sale of its crypto asset staking-as-a-service program. This program allows investors to transfer their crypto assets to Kraken in exchange for staking, with Kraken promising investors annual returns of up to 21 per cent.
SEC Charges against Kraken
As part of the settlement with the SEC, the two Kraken corporations have agreed to pay $30 million in disgorgement, prejudgment interest, and civil penalties and to immediately cease promoting or selling securities via crypto asset staking services or staking programs.
The SEC claims that since 2019, Kraken has advertised and sold its “staking services” to the general public. These services involve Kraken pooling specific crypto assets transferred by investors and staking them on behalf of those investors. In order to participate in the validation of blockchain data, investors “stake” their crypto tokens with a blockchain validator, with the expectation of receiving additional tokens as a reward.
Investors lose control of their tokens and assume platform risks when they hand them over to staking-as-a-service providers. According to the complaint, Kraken represents that its staking investment program is user-friendly and provides investors with benefits as a result of Kraken’s work on their behalf, such as Kraken’s tactics to acquire regular investment returns and dividends.
Cryptographic intermediaries “offering investment contracts in exchange for investors’ tokens,” whether through staking-as-a-service, lending, or other means, “need to provide the proper disclosures and safeguards required by our securities laws,” said SEC Chair Gary Gensler.
Due to the announcement, staking-as-a-service providers must register and offer full, fair, and truthful disclosure and investor protection.
In case after case, we’ve seen the consequences when individuals and businesses out and offer crypto investments outside the protections provided by the federal securities laws: investors lack the disclosures they deserve and are harmed,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. By discontinuing this unregistered crypto staking program, Kraken offered investors excessive earnings untethered to economic realities and retained the right to pay them no returns, we protect regular investors.
Meanwhile, it gave them no information about, among other things, its financial health or ability to pay the advertised returns.
Payward Ventures, Inc., Payward Trading, Ltd., and Payward Ventures, Inc., all declined to comment on the SEC’s claims and consented to the entry of a final judgment 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 any means.
Laura D’Allaird and Elizabeth Goody led the SEC investigation with support from Sachin Verma, Eugene Hansen, and James Connor. Jorge G. Tenreiro, David Hirsch, and Paul Kim were in charge of them.