Kraken hit by $1.25M in Fines from CFTC for alleged illegal Offering

Vincent McGonagle is the acting director of enforcement at the CFTC. He stated that “margined, leveraged, or financed digital assets trading must occur on properly registered, regulated exchanges in compliance with all applicable laws, regulations, and laws.” The United States Commodity Futures Trading Commission (or CFTC) has ordered crypto exchange Kraken to pay $1.25 million in civil monetary penalties. This is in response to allegations that Kraken, a U.S.-based exchange, has failed to register as a futures merchant and is illegally offering margined digital commodity transactions. The exchange must pay a $1.25 million penalty and “cease-and-desist from further violations” of the Commodity Exchange Act, which is the law under which the CFTC has much of its enforcement power. Vincent McGonagle is the acting director of enforcement. “Margined and leveraged digital asset trading must be offered to retail U.S. clients on properly registered and regulated platforms in accordance to all applicable laws and regulations,” the CFTC claims. Kraken is accused of offering margined retail commodity transactions using digital assets to ineligible U.S. citizens from June 2020 to July 2021. Kraken has since changed its margin trading policy. Customers were required to close or settle their positions in 28 days from June 2021. According to the CFTC, these actions were illegal as they occurred on a non-dedicated contract market. Kraken could unilaterally force liquidation of the margin position if repayment is not made within 28 days. Kraken could also initiate a forced sale if the collateral value falls below a certain threshold percent of the total outstanding margin. The actual delivery of the purchased assets did not occur. The monetary penalty of 0.0125% represents 0.0125% of the value of BitMEX, a crypto derivatives exchange.

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