Kraken's CEO on Their Battle Against The SEC

I don't think we need you to have a prolific Twitter presence, all right? Because some, you know, exchange leads have done that and led us down some pretty dark paths. What we need from Dave Ripley is to protect our funds and build fantastic products.

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Kraken versus the SEC. Round two. Some context here. Round two. Before we get in. Kraken is one of the two most important exchanges in the US right now. It's also an essential bridge across a bunch of other jurisdictions. Kraken is big in Europe, Australia, Canada, many places across the world. Recently, Kraken has come under fire for the second time from the SEC. That's the second time this year. They settled the first complaint. It's cost them $30 million, but this time they are fighting the SEC in court. They're saying enough is enough. Kraken versus the SEC in the state of California. It's on. So we brought on CEO Dave Ripley to tell us more. And in the process, it's a good opportunity to get to know him as one of the world's most important centralized exchange operators. David, why was this episode significant to you?

I think it's important that Kraken has to actually fight this time because I think it's pretty clear that the SEC is looking for below the belt wins that they're trying to just scrape out of the crypto industry in whatever way that they can. And so Kraken is choosing to fight very firmly because they realize that, like, if they settle again, then, well, what's to stop Gary Gensler from just trying a third time and a fourth time? Because we know Gary Gensler is not about the facts. He is just here for the narrative. He's just here for the perceived win that he can go to take home and show mom and dad, you know, Janet Yellen and Elizabeth Warren. And so Kraken's got to fight. They're taking this heavy responsibility of advocating for the entire industry on their shoulders and fighting Gary Gensler and the SEC. Notably, the big thing that the SEC is charging Kraken is, you know, allowing securities to trade on their platform, but the SEC is going after Kraken, not the United States domiciled issuers of the security, which would be the place that the whole issue is spawned in the first place. They're going after an adjacent service provider. Everything about this is just below the belt. Anyways, this is Dave Ripley's first year as CEO of Kraken, and he's had to deal with this twice now. And so he's just gonna take the leadership position for the industry and go toe-to-toe with Gary Gensler because he has to. And I guess we thank him for it because someone's got to do it, and Kraken's doing this tough job. This would be my analysis of like the current predicament and opportunity that Kraken finds itself in.

Before we get into the episode today, first we disclose. So most of you listening to this already know that Kraken is a sponsor of Bankless. It's our recommended exchange. Both Dave and I tell you that at the beginning of most episodes. And why did we pick Kraken? Because the world needs a bridge to crypto. And Kraken is one of the few exchanges that served the industry as that bridge without fail for like 11 years, many cycles. Furthermore, we want them to absolutely beat the pants off of the SEC.

More than that.

There is a link to all of our disclosures in bankless.com slash disclosures. You can always access that.

I learned at the end of this episode, Ryan, that Kraken customers are called Krakenites. So we've got the Bankless Nation, and we also got Krakenites. And we also have Krakenites in the Bankless Nation. Shout out to all of you guys.

All right, guys, we're gonna get right to the discussion with Dave Ripley. Bankless Nation, we are very excited to introduce you to Dave Ripley. He's the first time on the podcast. He is the CEO of Kraken. He's been at Kraken for six years, but this is his first year as CEO. He's replaced former OG and bankless guest, Jesse Powell, who is the co-founder of Kraken. And Dave has had a very exciting first year or so as CEO because the SEC has come after Kraken, not just once, but twice. In Gary's campaign to become maybe the most anti crypto SEC chairman of all time. Those are our words, not Dave's. But Dave, it is wonderful to have you on Banklist in these trying times. How are you doing?

Doing great. Yeah. Thanks for having me. Looking forward to talking with you guys.

Okay, can we start here? We want to get your background and learn a bit more about you, but before we do, let's talk about current events here. So it seems like the SEC dropped some sort of case on Kraken earlier in 2023 around your staking service. And I believe that was resolved in some way. Maybe you could talk a little bit about that. And now there is a new complaint from the SEC that just dropped, I believe, a month ago, sometime in November. Can you give us some context for all of the regulatory action this year coming out of the SEC towards Kraken?

Yeah. So, I mean, I think your summary pretty much covers it on the two events here. You know, one earlier resulted in a settlement. And then this new complaint that just came our way. I mean, it honestly, this new complaint is

uh looks pretty familiar, right? You know, it's similar to what we've seen, you know, basically Coinbase face.

Frankly, not terribly. I mean, there are differences, of course, you know, given our role in the ecosystem vis-a-vis Ripple, but kind of like the underlying law at play is not terribly different than what they faced with Ripple and in XRP and where they lost. So yeah, I mean, it's particularly disappointing for us and for me to see, you know, kind of the SEC go down this path and kind of the problematic approach that they've had, particularly given that we

we are in markets in Europe, in the UK, and Canada, and Australia, and many different places where we're, you know, working with regulators and they're putting forth clarity, and we are, you know, working within those licensing regimes and moving forward. And things are frankly going great in most of those geographies.

Dave, I remember reading some of the details on the weekly roll-up that we do every single week, kind of recapping the news. And the charges of the SEC as we were reading them seem to charge you guys with being an exchange. As in you allowed a marketplace to come together for buyers and sellers of crypto assets. And as you were reading the complaint, you would just got the idea that apparently just being an exchange is against the rules, according to the SEC. Is there anything that like stood out about the complaint other than just like it's the same thing, you know, that Binance does, that Coinbase does, that every other exchange does? Is there really anything that stood out as exceptional in this complaint from the SEC?

Frankly, not for us, no. I mean, they try to bake in a number of other things to, you know, kind of make the complaint grab headlines. I mean, frankly, it's, you know, appears to be and and has been for a while, a bit of a PR

You know, set of PR objectives, but you know, public relations objectives that they have going, you know, with their approach on a number of these different complaints. And so I think that probably the most notable is, you know, things don't seem to be going that well in the Southern District of New York where they're bringing these claims, right? You know, of course, XRP didn't go their way. The, you know, the grayscale request didn't seem to go well. Of course, you know, they didn't see the outcome they wanted there. Coinbase, you know, that's under progress. It probably takes a room full of lawyers to debate how that's actually progressing, you know, at this given juncture. You know, one thing that's different though from all these is that they're bringing it in a different jurisdiction. So they're bringing it in California as opposed to Southern District in New York.

That's just because that's where you guys are located in California, right? Kraken is headquartered in the state of California.

No, it's not. You know, they can bring it in a number of different jurisdictions, actually. And it isn't necessarily tied to where we're located. I mean, for what it's worth, we actually don't even have an office in California at this given point in time, and we're not even necessarily located here. Certainly not more so than Coinbase, who they happen to bring into the Southern District in New York district. So, I mean, part of it is, you know, again, speculation, but are they, you know, kind of looking to try a different district that isn't as tied to the one where they have you know racked up some of these losses?

Okay, so the SEC has collected some L's in New York specifically. And the idea is like, well, they are gonna go ahead and try out an alternative, perhaps more favorable jurisdiction, at least to try it again. Speculation. It's speculation. Yeah. It kind of feels like in middle school or high school, and I ask my mom if I can go out with some friends, and my mom says no. And then I go over to my dad and ask the same question and try and get my dad to say yes. Kind of feels a little bit like that.

This is what we're faced with.

This is a very reasonable analogy to my more long-winded description.

And of course, and interestingly, in this complaint, the SEC actually named some of the assets trading on platform to be securities. Adam from Cosmos, Phil from Filecoin, Matic from Polygon, Sol from Solana Nier, a few others. And these are our crypto networks. These are our crypto assets. They are integral to the functioning of these blockchains. They need to be able to be in the market in order for these systems to work. And also notably, they also trade on Coinbase, which is a public company that the SEC approved to go public. And so again, just reading through some of the documentation from the SEC, they really leaned into a lot of the allusions to other crypto exchanges which have had much worse stories, you know, FTX being the obvious one. And to me, it appears, again, these are just my opinions, that it's really just a narrative campaign. The SEC is trying to bolster up some allusions to FTX and other exchanges that are not so compliant. Which I can imagine, as the CEO of a United States domiciled exchange that committed to the United States and has been committed to the United States for 11 and a half years would be supremely frustrating. And it would as your first year as the uh CEO of Kraken, I would imagine that that would be just like um.

Uh disappointing, to say the least.

Yeah, no doubt. You know, again, I mean I think you're kind of going back to a similar point that I made earlier about,

you know, kind of the element of PR seems to be meaningful here.

In their approach. I mean, frankly, less so focused on the law. I think when we look at the law, and you know, as we stated in our blog and probably some of our tweets and so forth, there there isn't a basis for this complaint here. And so,

you know, kind of adding in other things that are, you know, related, unrelated, try to, you know, catch eyeballs are, you know, seems to be part of the strategy.

Part of the charge here and maybe some of the PR was this complaint or this idea that Kraken is co-mingling funds. Can you address that? Like what was the SET talking about and you know, what's your interpretation of this?

You know, this is kind of a typical thing that they've gone to in these complaints. They put in a commingling claim in the Coinbase complaint as well. They, you know, put one in this particular claim against Kraken.

I mean, you know, on a factual basis, by and large, all the facts that they attempt to state aren't correct. Later in the complaint, they attempt to qualify one of their claims earlier with regard to co mingling.

Yeah, I mean, we use, you know, segregated accounts for, you know, operating and custodial funds. And, you know,

that's basically the structure of our platform. We, you know, if

Invested meaningfully in all of these different areas with regard to our systems and our platform. And security is frankly one of the bedrocks for Kraken that, you know, a lot of our clients really appreciate about our platform. And so it, you know, just doesn't really have any basis.

Okay, so there were two claims, as I said, two complaints from the SEC this year. The first was actually in February, and Kraken chose to settle that. That was around the staking services that Kraken was providing. Now, this latest one is basically like you guys are being a crypto exchange, and we're complaining about that because the SEC is alleging that all sorts of these crypto assets are securities. The one in February, Kraken decided to settle. I believe this one in November, Kraken is deciding not to settle. This has been the statement out of Kraken that I've seen on Twitter and your press releases that you are intending to fight this. You are intending to push this in the court system. Can you tell me why? Is this just like, hey, they've crossed the line here and no further? We're making a stand. This is our core business. Americans deserve access to crypto assets on exchanges that will protect them. Have you guys just said enough is enough? Is that what's happening? And how is this different than February?

Yeah, you know, so I mean it's a couple of different things. You know, one of the frustrating things about that settlement is we're not allowed to talk about it or the details of the settlement itself. So that is what it is. I mean, it was certainly different times for the industry and so forth that, you know, back when that happened. But yeah, I mean, all of your description and summary of this particular complaint is exact precisely how we feel. We feel that, you know, it when you look at the law, the SEC is wrong. And, you know, we intend to prove that and win this case.

I guess from you know looking in from the outside, obviously not being part of any of that, it just seems like the SEC one, you know, one particular case got, I believe, $30 million in settlement and is now coming back nine months later to recollect. There's something that feels like deeply unfair, I think, to most folks in crypto that are looking at this from the outside in. I'm sure you can't reflect fully on that, but I think you've got a lot of supporters in the crypto community here.

Yeah, no, for sure. A couple things. I mean, just you know, with the settlement, there was no admission of any wrongdoing whatsoever as part of that. You know, that's also a piece of it. But yeah, I mean, strange to go through all that and they didn't, you know, mention that there might be this other thing about our business that they want to discuss with us. Um, yeah, it's quite odd. But, you know, this is what we face right now in the United States. I mean, all of this is, you know, probably the most amazing part of this is that Congress is working hard trying to actually get a bill across the finish line.

to bring clarity to answer these questions

and provide a licensing structure, much the same as other countries have done. Canada,

all of Europe underway, European Union.

UK is on their way as well. And

the SSC is non-participatory in that process and just, you know, pursuing this path of litigation,

you know, based on, you know, laws from you know nearly 100 years ago.

Dave, I'm just curious, do you have any takes on why? I mean, you know, notably the groups that the SEC is going after, at least on the exchange side, are you know Kraken and Coinbase, two exchanges that I don't have to remind our listeners were wholly solvent and protected users' funds in the crises of 2022? They were the complete opposite of FTX. And rather than receive kind of you know praise for that and you know, some uh, I guess uh greater clarity with respect to your status, it seems like this regulator is going out and now going on the offensive. Where do you think this is coming from? Is this just isolated to the SEC? Or as you compare this to other jurisdictions, does this represent some sort of, I don't know, unique undertone of hostility?

Yeah.

that some in the US government have towards crypto? Like what's your explanation for this?

Well, I mean, there's obviously an undertone of hostility towards crypto as part of this. I mean, you know, pursuing this path of, you know,

regulation by enforcement is clearly that, right? You know, on the companies,

there is a notion of you know, cracking Coinbase.

These are companies that you know have been around a long time, have kind of followed this path of regulatory compliance from the outset, continue to work with jurisdictions everywhere.

You know, so why these two companies and why does it seem to is likely an aspect of that is like the ease with which they can do this. It's much more difficult for them to

go after a company that is outside the US,

but still happens to be serving US clients.

Just from you know a practical matter. And so I think that's a big, big part of what we're seeing right now.

So it's just because you're in the neighborhood, they feel like they're in close

Yeah.

and they could slap you around

Right. You know, something that, you know, we get a a group of lawyers explain, but just like the practicality in the process of bringing a complaint against a, you know, some offshore business is just much more difficult for them to execute from a tactical standpoint. And so, you know, that's obviously one factor here.

So Dave, you've mentioned that the Kraken has no plans on letting the SEC just bully Kraken around and really the entire industry. And since we're gonna go to the course and fight this one, do you have any sort of like clarity as to like what that looks like? Like what is this next what's the timeline? What's the time frame uh with regards to the Kraken versus SEC, which is now a case? It's now Kraken versus SEC, correct?