The SEC accused Kraken of being an unregistered exchange and mixed user funds.

The United States Securities and Exchange Commission sued Kraken for commingling customer funds and failing to register with the regulator as a securities exchange, broker, dealer and clearing agency.

In a complaint filed Nov. 20 in San Francisco federal court, the SEC said that since 2018, Kraken has been operating as a platform that facilitates the buying and selling of illegal currencies.

A spokesperson for Kraken told Cointelegraph that it does not agree with the SEC's complaint and plans to defend itself in court.

The lawsuit marks the latest push by the Gary Gensler-led agency to bring crypto into the fold, claiming that crypto assets are securities under US law.

“Without registering with the SEC in any capacity, Kraken has simultaneously acted as a broker, dealer, exchange and clearing agency with respect to these crypto asset securities.”

In addition, the SEC looked into Kraken's business practices and “deficient” internal controls over the exchange's combination of up to $33 billion in client assets with its own. The SEC said this posed a “significant risk of loss” to its customers.

The complaint cited the exchange's independent auditor as saying that Kraken paid operating expenses directly from accounts held by customers.

“We believe Kraken made a business decision to extort hundreds of millions of dollars from investors rather than comply with securities laws,” SEC Enforcement Division Director Gurbir Grewal said in a statement. “This decision has resulted in a business model with a conflict of interest that puts investors' money at risk.”

Kraken pushed back on the SEC's allegations with a spokesman saying the exchange never listed unregistered securities.

“We disagree with the SEC's complaint against Kraken, remain firm in our position that we will not list securities and plan to vigorously defend our position.”

“It is unfortunate to see the SEC continue its path of regulatory enforcement that harms American consumers, stifles innovation, and undermines America's global competitiveness,” the spokesman said.

In a Nov. 20 blog post, Kraken said the SEC's charges “do not exceed the costs Kraken has already incurred,” and the regulator doesn't say any user funds are missing.

In the complaint, the SEC listed 16 cryptocurrencies it considered securities, including Cardno (ADA), Algorand (ALGO), Polygon (MATIC), and Solana (SOL).

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The SEC's complaint alleges Kraken violated the registration provisions of the Securities Exchange Act of 1934. Kraken is seeking punitive damages, injunctive relief and asking the exchange to return “unfair profits.”

Allegations that Kraken acted as an unregistered broker for crypto assets are similar to those brought against Coinbase and Binance in June.

On February 9, Kraken reached a $30 million settlement with the regulator, where it agreed to stop offering crypto-staking products and services to US customers.

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Update (November 21, 12:45 am UTC): This article has been updated to include comments from a Kraken spokesperson.