In a settlement with the U.S. Securities and Exchange Commission (SEC), crypto venture Kraken has agreed to stop offering its unregistered crypto staking program.
The SEC charged the companies that operate as Kraken — Payward Ventures Inc. and Payward Trading Ltd. — with failing to register their crypto staking program, which pools investors’ cryptoassets and promises a return in exchange for the use of those assets to help validate blockchain data.
Without admitting or denying the SEC’s allegations, the firms agreed to stop offering the program and to pay US$30 million in penalties and disgorgement. The settlement is subject to court approval.
“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,” the SEC said. “When investors provide tokens to staking-as-a-service providers, they lose control of those tokens and take on risks associated with those platforms, with very little protection.”
“Whether it’s through staking-as-a-service, lending or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws,” Gary Gensler, SEC chairman, said in a release.
“Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection,” he said.
“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: investors lack the disclosures they deserve and are harmed when they don’t receive them,” said Gurbir Grewal, director of the SEC’s enforcement division.
According to the SEC’s complaint, investors didn’t receive any information about the financial condition of the firms, the fees they charged, their profits and the risks of the investment.
“Defendants have disclosed only the information that they wish, not the information required by law,” it said.
“Today, we take another step in protecting retail investors by shutting down this unregistered crypto staking program, through which Kraken not only offered investors outsized returns untethered to any economic realities, but also retained the right to pay them no returns at all,” Grewal said. “All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.”