On February 9, 2023, the SEC filed a complaint in the United States District Court for the Northern District of California asserting charges against affiliated crypto firms Payward Ventures, Inc. and Payward Trading Ltd., both doing business as Kraken (collectively, Kraken defendants) for failing to register the offer and sale of the Kraken staking-as-a-service program (Kraken staking program). On February 13, 2023, the court entered the SEC's proposed final judgment order to settle the charges against the Kraken defendants.

Under the Kraken staking program, investors transferred crypto assets to the Kraken defendants, which the Kraken defendants pooled and staked on behalf of those investors in exchange for advertised annual investment returns up to 21 percent. According to the complaint, the Kraken defendants have offered and sold the Kraken staking program to the general public since 2019. According to the SEC, the offer and sale of staked interests by US investors under the Kraken staking program is considered an offer and sale of investment contracts under the Howey test, developed in the 1946 US Supreme Court case SEC v. W.J. Howey Co., 328 U.S. 293, 299 (see SEC Regulation of Digital Assets: The Howey Test).

The SEC describes "staking" as a process in which investors lock up or "stake" their crypto tokens with a blockchain validator. The goal of the investor is to be rewarded with new tokens when their staked crypto tokens become part of the process for validating data for the blockchain. When investors provide tokens to staking-as-a-service providers, they lose control of those tokens and take on risks associated with those platforms with little protection.

The complaint alleges that the Kraken defendants touted that the Kraken staking program offered an easy-to-use platform and that investors would receive benefits that derived from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts. The SEC further alleged that per the Kraken terms of service, the Kraken defendants retained the right not to pay any investor return.

According to the complaint, US Kraken investors lacked material information about the Kraken staking program and have had no insight into the Kraken defendants’ financial condition or whether the Kraken defendants had the means to pay the marketed returns due to the absence of a registration statement. As a result, according to the complaint, those investors lacked material information about the Kraken staking program and US retail investors who participated in the program suffered significant harm.

To settle the charges, the Kraken defendants agreed:

SEC Chair Gary Gensler noted that the Kraken action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure. In a statement SEC Commissioner Hester Pierce dissented from the SEC actions against Kraken noting that the SEC's solution to a registration violation is to shut down entirely a program that has served people well.

On February 13, 2023, the SEC issued a litigation release on its complaint against and proposed settlement with the Kraken defendants in its case captioned Securities and Exchange Commission v. Payward Ventures, Inc. (d/b/a Kraken) and Payward Trading, Ltd. (d/b/a Kraken), No. 3:23-cv-00588 (N.D. Cal. filed Feb. 9, 2023).