The Securities and Exchange Commission (SEC) dropped a bomb on November 20th, filing a complaint labeling multiple cryptocurrencies as unregistered securities illegally offered on Kraken’s trading platform.
The regulator cited Kraken’s failure to follow broker-dealer regulations while reaping over $15 billion in fees and trading revenue. However, its most wide-ranging implications are its designation of multiple crypto tokens as securities. Including SOL and ADA, both tokens that have seen positive price movements over the past 30 days.
The complaint made clear that the SEC believes Cardano’s ADA, Algorand’s ALGO, Cosmos’ ATOM, Filecoin’s FIL, Flow’s FLOW, Dfinity’s ICP, Decentraland’s MANA, Polygon’s MATIC, NEAR Protocol’s NEAR, OMG Network’s OMG, and Solana’s SOL to constitute securities.
According to the complaint, Kraken allowed the unregistered offer and sale of tokens functioning as investment contracts. This designation means funds were invested into a common crypto enterprise with the expectation of profit derived from the efforts of creators, developers, promoters, or other third parties.
Essentially, the SEC believes investors counted on people like Charles Hoskinson, Silvio Micali, and Anatoly Yakovenko to increase the value of Cardano, Algorand, and Solana through platform development and adoption incentives.
By deeming these crypto assets as securities, the SEC opens the door to enforcing strict broker-dealer rules around digital token offers/sales. Assuming the court agrees with the regulator’s assessment, it would require exchanges like Kraken to follow regulations related to transparency, custody, best execution, books/records, and conflicts of interest.
Additionally, projects like Decentraland, a metaverse platform, could face restrictions on promotional promises that imply investment potential.
This isn’t the first time the SEC under Gary Gensler has listed crypto assets as securities in a legal complaint. It did similarly back in June when it filed cases against Coinbase and Binance for similar violations that it accuses Kraken of. However, since then a lot has changed. The SEC mostly lost its case with Ripple when a court decided that XRP was not a security when sold on exchanges.
Since the Ripple decision, exchanges have taken note. XRP is now available on Coinbase, Gemini and Kraken and others, despite the SEC’s insistence that it will fight on. Now, speculation is rife that exchanges may relist other tokens designated as securities, too.