It was just a matter of time before the so-called “exchanges” were targeted by regulators. The writing has been on the wall for months. First SEC Chairman Jay Clayton warned exchanges to register or seek an exemption, such as becoming a Broker Dealer and using an Alternative Trading System. Then there was a bulletin alerting the general public that exchanges trading cryptocurrencies and unique digital tokens issued by companies in an ICO are going to be regulated or shut down.
Then last week the Attorney General of New York joined the building regulatory clamor with a request for information from exchanges with an informal inquiry, or a subpoena-lite. This inquiry targeted 13 exchanges, including Kraken.
Of the 13, Kraken was the only exchange to actually respond with a defiant position. Kraken co-founder & CEO Jesse Powell claims Kraken does not have New York customers trading on their platform. In Jesse’s words, “Kraken left New York because New York is hostile to crypto, and this ‘questionnaire’ we received today proves that New York is not only hostile to crypto, it is hostile to business.”
Jesse’s response is defiant, especially in contrast to the responses of the other exchanges, all of whom welcomed the inquiry and promised to accommodate the Attorney General. In contrast, Jesse clearly plans to ignore the inquiry.
Odd that Jesse claims the inquiry is a “disrespect to [Kraken’s] business, [Kraken’s] time” and that the inquiry is a “resource diversion.” The nature of the Attorney General’s inquiry isn’t nearly so left-field. Shouldn’t all legitimate businesses have relevant information about their operations already on hand at all times? Shouldn’t the matter of responding to the inquiry then just be the simple answering of questions? What makes this the “massive” undertaking that Jesse describes?
There is a clear disconnect between Jesse’s opinions about the Attorney General’s inquiry and what the inquiry actually means.
When a company gets an inquiry from a regulator, such as the SEC or the NY State Administrator, it is usually because the regulator has concerns over what the company is doing in regards to following the law. This inquiry is usually the first step to an enforcement action.
So what happens when Kraken does not answer the inquiry? The next step belongs to the State Administrator, who will send a cease and desist notice requiring the company, in this case Kraken, to follow it. This notice will probably ask Kraken to stop their operations in New York and refund their investors.
This notice may also come with a lawsuit from the New York justice department. Oh well. Maybe it is better to answer the inquiry. Or maybe Kraken realizes it does not matter because they will be shut down anyway for operating an exchange without being registered with the SEC or any of the states.
Read more at: Hacker Noon