It was only a matter of time before so-called “exchanges” were targeted by regulators. The quote has been on the wall for months. The first president of the SEC, Jay Clayton, has warned the exchanges to register or request an exemption, how to become a Broker Dealer and use an alternative trading system.
Then there was a bulletin informing the public that exchanges of cryptocurrencies and unique digital tokens issued by companies in an ICO will be settled or closed.
Then last week the New York Attorney General joined the normative building clamor with a request for information from exchanges with an informal inquiry, or a subpoena. This investigation targeted 13 exchanges, including Kraken.
Of the 13, Kraken was the only exchange to actually respond with a defiant position. Kraken’s co-founder and CEO, Jesse Powell, says that Kraken has no New York customers trading on their platform.
In the words of Jesse, “Kraken left New York because New York was hostile to the crypto, and this ‘questionnaire’ we received today shows that New York is not only hostile to the crypto, it is hostile to business”.
Jesse’s response is provocative, especially in contrast to the responses of the other exchanges, which all welcome the investigation and promise to welcome the attorney general. On the contrary, Jesse clearly plans to ignore the investigation.
Strange that Jesse claims that the investigation is “a lack of respect for the [Kraken] business, [the time of Kraken]” and that the investigation is a “diversion of resources.” The nature of the Prosecutor General’s investigation it is not so sinister. Should not all legitimate companies have relevant information about their operations already at hand? Should not it be the simple answer to the questions? What makes this “massive” business that Jesse describes?
There is a clear disconnection between Jesse’s views on the Attorney General’s inquiry and what the investigation actually means.
When a company receives a request from a regulator, such as the SEC or the New York State administrator, it is usually because the regulator has concerns about what the company is doing in reference to the law. This investigation is usually the first step towards a law enforcement action.
So what happens when Kraken does not answer the request? The next step belongs to the state administrator, who will send a notice of termination and resignation that requires the company, in this case Kraken, to follow it. This warning will probably require Kraken to discontinue their operations in New York and repay their investors.
This notice can also come with a lawsuit from the New York Department of Justice. Oh good. Perhaps it is better to answer the question. Or maybe Kraken realizes that it does not matter because they will still be closed to trade without being registered with the SEC or any of the states.