Kraken Shuts Down Crypto Staking Program, Pays $30M Fine to SEC

News | February 14, 2023 By:

On Thursday, February 9, 2023, two Kraken entities namely Payward Ventures, Inc. and Payward Trading Ltd., agreed to immediately shut down their offer and sale of securities through crypto asset staking services and pay $30 million in disgorgement, prejudgment interest, and civil penalties. This move by Kraken was in settlement of the charges filed by the Securities and Exchange Commission against the former of failure to register the crypto asset staking as a staking program.

According to the U.S. Securities and Exchange Commission Complaint, Kraken has been offering and selling staking services to the public, whereby Kraken pools certain crypto assets which were transferred by investors and stakes those assets on behalf of those investors.

The complaint alleged that Kraken advertised that the staking investment program offers an easy-to-use platform and benefits that come from Kraken’s efforts and strategies to obtain investment returns and payouts. Staking is the process in which the investors lock up their crypto tokens with a blockchain validator with the goal of having new tokens as a reward when their

SEC Chair Gary Gensler said that crypto intermediaries need to provide the proper disclosures and safeguards by our securities laws when offering investment contracts in exchange for investors’ tokens. Staking providers must register with the SEC and provide full, fair, and truthful disclosure investor protection, Gensler added.

“Kraken’s unregistered crypto staking program “not only offered investors outsized returns untethered to any economic realities but also retained the right to pay them no returns at all”, Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said.

In a statement, Commissioner Hester M. Peirce disagreed about the SEC’s shutting down Kraken’s staking program and counting it as a win for investors, saying, “Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it.”

Peirce, dissatisfied with SEC’s solution to a registration violation by shutting down entirely Kraken which has served people well, said that the settlement “do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.”

“We need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear.”, added Peirce.

According to the SEC’s press release, along with the shutdown of the staking program and the monetary relief, Payward Ventures, Inc. and Payward Trading Ltd. consented to the entry of final judgment, subject to court approval, that would permanently enjoin each of them from violating Section 5 of the Securities Act of 1933 and permanently enjoin them and any entity under their control from, directly or indirectly offer or sell securities through crypto asset staking services or staking programs.


Source: U.S. Securities and Exchange Commission