Kraken Agrees to Cease US Crypto Staking Operations, Settles with SEC for $30 Million Fine

“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,” said SEC Chair Gary Gensler. “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.”

Gurbir S. Grewal, the Director of the SEC's Division of Enforcement, also stated that the SEC is taking action to protect retail investors by shutting down an unregistered crypto staking program offered by Kraken. According to Grewal, the program offered investors unrealistic returns without proper disclosures, and Kraken had the right to pay them no returns at all, while also failing to provide any insight into its financial condition or ability to pay the marketed returns. This action is part of the SEC's ongoing efforts to prevent individuals and businesses from promoting and offering crypto investments outside the protections provided by federal securities laws.

In addition to ceasing the staking program and the monetary relief, Kraken, without admitting or denying the allegations in the SEC’s complaint, consented to the entry of a 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 they control from, directly or indirectly, offering or selling securities through crypto asset staking services or staking programs.

The SEC’s investigation was conducted by Laura D’Allaird and Elizabeth Goody, under the supervision of Paul Kim, Jorge G. Tenreiro, and David Hirsch, with assistance from Sachin Verma, Eugene Hansen, and James Connor.

It is important to note that 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. 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.