Kraken, the formerly San Francisco-based cryptocurrency exchange once helmed by a controversial CEO who questioned women’s intelligence, debated who was allowed to use racial slurs and argued against the use of personal pronouns, is now under investigation by the U.S. Securities and Exchange Commission for allegedly operating as an unregistered securities exchange.

The complaint, filed by the SEC Monday in San Francisco federal court, alleges that Kraken, one of the world’s largest cryptocurrency exchanges, “made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto.” Authorities say Kraken “commingled” customer crypto assets (valued at $33 billion) and customer cash (around $5 billion) with the company’s own and allegedly paid company expenses “directly from bank accounts that hold customer cash.”

The upshot is that “Kraken has created risk for investors and taken in billions of dollars in fees and trading revenue from investors without adhering to or even recognizing the requirements of the U.S. securities laws that are designed to protect investors,” said the SEC.

A Kraken spokesperson told The Standard Monday afternoon that it stands “firm in our view that we do not list securities and plan to vigorously defend our position.

“The SEC has repeatedly challenged crypto exchanges to come in and register without a single law supporting their position and no clear path to registration,” the spokesperson added. “And despite opposition from lawmakers, the SEC continues to pursue legal action against these crypto exchanges.”

Kraken was based in San Francisco until 2022, when then-CEO Jesse Powell announced that the company planned to close its headquarters on Market Street in favor of a fully remote-first workplace. Powell blamed “rampant crime” and homelessness in the city, writing in a statement that many of his employees had been “attacked, harassed and robbed” on their way to and from Kraken’s offices. 

Powell stepped down as CEO in September 2022 after becoming embroiled in an escalating battle with employees over his incendiary comments about race and gender, in which he advised those who were “triggered” by his remarks to quit. Powell remains the chairman of Kraken’s board, while Dave Ripley, the former Chief Operating Officer, now serves as CEO.

The SEC has clamped down hard on crypto exchanges in recent months, contributing to an already significant cooldown in the industry that was exacerbated by the collapse of high-flying cryptocurrency exchange FTX and the subsequent scandal surrounding founder Sam Bankman-Fried. In June, federal regulators hit Binance and Coinbase—two of the most well-known crypto exchanges—with similar allegations. Kraken and other crypto firms maintain that they shouldn’t be subject to SEC rules because cryptocurrencies are not securities. They scored a partial victory in July when a judge ruled that the popular digital XRP coin was not a security asset.

This isn’t the first time Kraken has faced regulatory scrutiny. In 2021, it paid $1.25 million to settle charges from the Commodity Futures Trading Commission that it had allowed U.S. traders to access illegal crypto margin products. Earlier this year, Kraken had to pay $30 million to the SEC and cease its “staking-as-a-service” program, which allows customers to stake their assets on behalf on Kraken.