SEC v. PAYWARD, INC.; and PAYWARD VENTURES, INC., No. 3:23-cv-06003, Southern District of New York (Nov. 21, 2023) — Complaint

COMPLAINT
1

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

DANIEL BLAU (Cal. Bar No. 305008)
Email: [email protected]
ALEC JOHNSON (Cal. Bar No. 270960)
Email: [email protected]
PETER MOORES (Mass. Bar No. 658033)
Email: [email protected]
ELIZABETH GOODY (N.Y. Bar No. 4687463)
Email: [email protected]

Attorneys for Plaintiff
Securities and Exchange Commission

David Hirsch, Chief (Crypto Assets and Cyber Unit)
Jorge Tenreiro, Deputy Chief (Crypto Assets and Cyber Unit)
100 F Street NE
Washington, DC 20549

Kathryn E. Zoladz, Acting Regional Director
Douglas M. Miller, Regional Trial Counsel
444 S. Flower Street, Suite 900
Los Angeles, California 90071
Telephone: (323) 965-3998
Facsimile: (213) 443-1904

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
vs.
PAYWARD, INC. and PAYWARD
VENTURES, INC.,
Defendants.
 Case No.
COMPLAINT

In support of its Complaint against Defendants Payward, Inc. (“Payward”) and
Payward Ventures, Inc. (“Payward Ventures”), which collectively do business as
“Kraken,” Plaintiff Securities and Exchange Commission (“SEC” or the
“Commission”) alleges as follows:

COMPLAINT
2

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

I. SUMMARY
1. Since 2013, Kraken has operated an   online trading platform through
which its customers can buy and sell crypto assets, many of which form the basis of
investment contracts covered under U.S. securities laws.    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 doing so, Kraken
has created risk for investors and taken in billions of dollars in fees and trading
revenue from investors without adhering to or even recognizing the requirements of
the U.S. securities laws that are designed to protect investors.
2. Kraken’s business practices, deficient internal controls, and inadequate
recordkeeping present a range of additional risks that would also be prohibited for
any properly registered securities intermediary.  For example, Kraken has at times
held customer crypto assets valued at more than $33 billion, but it has commingled
these crypto assets with its own, creating what its independent auditor had identified
in its audit plan as “a significant risk of loss” to its customers.  Similarly, Kraken has
held at times more than $5 billion worth of its customers’ cash, and it also
commingles some of its customers’ cash with some of its own.  In fact, Kraken has at
times paid operational expenses directly from bank accounts that hold customer cash.
In addition, during 2023, the independent auditor determined that issues related to
Kraken’s recordkeeping for customer custodial assets had resulted in material errors
to Kraken’s financial statements for 2020 and 2021.
3. Congress enacted the Securities Exchange Act of 1934 (the “Exchange
Act”) in part to provide for the regulation of the national securities markets.
Congress charged the SEC with protecting investors, preserving fair and orderly
markets, and facilitating capital formation.  The SEC carries out these statutorily
mandated goals in part through a series of registration, disclosure, recordkeeping,
inspection, and anti-conflict-of-interest regulations.  These regulations have generally
led to the separation of key intermediaries in the securities markets⸺including the

COMPLAINT
3

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

separation of brokers and dealers from exchanges and clearing agencies⸺thereby
protecting investors and their assets from the conflicts of interest and risks that can
arise when these functions merge.  The SEC has also taken steps to protect investor
assets when held by brokers or clearing agencies, including by issuing regulations
that restrict the commingling of customer assets with those of the companies handling
their investments.
4. By operating a platform on which crypto assets are offered and sold as
investment contracts, Kraken’s operations place it squarely within the purview of
U.S. securities laws.  Over seventy years ago, the Supreme Court in SEC v. W.J.
Howey Co., 328 U.S. 293 (1946), set forth the relevant test for determining whether
an instrument is an investment contract subject to regulation under U.S. securities
laws.  And in July 2017, the Commission issued a public report reminding members
of the public that crypto assets may be considered investment contracts subject to
securities laws if they satisfy Howey’s test.  The SEC has also enforced the relevant
securities laws by bringing a range of enforcement actions based on the offer and sale
of crypto assets as securities.  Nonetheless, Kraken has turned a blind eye to its legal
responsibilities and engaged in its securities intermediary conduct without registering
with the Commission, depriving investors of the disclosures and protections that
registration entails.
5.   In failing to prevent known conflicts of interest and commingling its
investors’ assets with its own, Kraken demonstrates why registration and the investor
protections that come with regulatory oversight are critical to the soundness of the
United States capital markets.  Defendants have placed their own financial interests
ahead of the legal obligations they owe to customers as securities intermediaries.  By
engaging in the conduct set forth in this Complaint, Defendants have acted as an
exchange, a broker, a dealer, and a clearing agency without registration in violation of
Exchange Act Sections 5, 15(a), and 17A(b) [15 U.S.C. §§ 78e, 78o(a), and 78q-
1(b)].  Unless Defendants are permanently restrained and enjoined, they will continue

COMPLAINT
4

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

to violate these statutes.
6. The Commission brings this action pursuant to the authority conferred
upon it by Exchange Act Section 21(d) [15 U.S.C. § 78u(d)].
7. The Commission seeks a final judgment: (i) permanently enjoining
Defendants from violating Sections 5, 15(a), and 17A of the Exchange Act [15 U.S.C.
§§ 78e, 78o(a),  and 78q-1(b)(1)]; (ii ) ordering Defendants to disgorge their ill-gotten
gains, on a joint and several basis, and to pay prejudgment interest thereon; (iii)
permanently enjoining Defendants from acting as an unregistered exchange, broker,
dealer, or clearing agency; and (iv) imposing civil money penalties on Defendants.
II. JURISDICTION AND VENUE
8. The Court has jurisdiction over this action pursuant to Section 21(d) of
the Exchange Act, 15 U.S.C. § 78u(d).
9. Defendants, directly or indirectly, have made use of the means or
instrumentalities of interstate commerce, of the mails, or of the facilities of an
exchange within or subject to the jurisdiction of the United States in connection with
the transactions, acts, practices, and courses of business alleged in this Complaint.
10. Venue is proper in this district pursuant to Section 27(a) of the Exchange
Act, 15 U.S.C. § 78aa(a), because certain of the transactions, acts, practices, and
courses of conduct constituting violations of the federal securities laws occurred
within this district.  In addition, venue is proper because Defendants   are
headquartered in this district.
III. DIVISIONAL ASSIGNMENT
11. Under Civil Local Rule 3-2(d), this case should be assigned to the San
Francisco Division or the Oakland Division because a substantial part of the events or
omissions that give rise to the claims alleged herein occurred in San Francisco
County.
IV. DEFENDANTS
12. Payward is a Delaware corporation founded in 2011, with an address in

COMPLAINT
5

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

San Francisco, CA.  Payward has a number of wholly owned subsidiaries
headquartered throughout the world, including Payward Ventures, Inc.  Payward and
most of its subsidiaries do business as Kraken.  Payward has never registered with the
Commission in any capacity.
13. Payward Ventures is a Delaware corporation founded in 2013, with an
address in San Francisco, CA.  Payward Ventures has never registered with the
Commission in any capacity.  On February 9, 2023, the SEC filed a settled action
against Payward Ventures in connection with the unregistered offer and sale of
Kraken’s staking-as  -a-service program.  See SEC v. Payward Ventures, Inc., No.
3:23-cv-588 (N.D. Cal.).
V. BACKGROUND
14. Kraken is subject to the laws and regulations governing the U.S.
securities markets because many of the crypto assets bought and sold through its
platform are offered, bought, and sold as investment contracts.  As discussed below,
investment contracts are defined broadly under the law with a focus on an investor’s
reasonable expectations in acquiring an asset, rather than the form of the transaction
itself.  Moreover, Kraken has long been on notice that its role in the offer and sale of
crypto assets as investment contracts   made it subject to U.S. securities laws.
A. Statutory and Legal Framework Regarding the Scope of U.S.
Securities Regulations
15. As the Supreme Court has recently reemphasized, the Exchange Act and
the Securities Act of 1933 (“Securities Act”) “form the backbone of American
securities laws.”  Slack Tech., LLC v. Pirani, 598 U.S. 759, 762 (2023).  Together,
these acts provide for the regulation of various entities involved in the purchase and
sale of securities and define “security” broadly to include a wide range of assets,
including “investment contracts.”  Securities Act § 2(a)(1) [15 U.S.C. § 77b(a)(1)];
Exchange Act § 3(a)(10) [15 U.S.C.  § 78c(a)(10)].
16. Investment contracts are instruments through which a person invests

COMPLAINT
6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

money in a common enterprise and reasonably expects profits or returns derived from
the entrepreneurial or managerial efforts of others.  As the United States Supreme
Court noted in Howey, Congress defined “security” broadly to embody a “flexible
rather than a static principle, one that is capable of adaptation to meet the countless
and variable schemes devised by those who seek the use of the money of others on
the promise of profits.”  328 U.S. at 299.  Following Congress’s intent, courts have
found novel or unique investment vehicles to be investment contracts, including those
involving orange groves, animal breeding programs, cattle embryos, mobile phones,
enterprises that exist only on the internet, and crypto assets.
17. To protect investors and fulfill the purposes of the Exchange Act,
Congress imposed registration and disclosure obligations on certain defined
participants in the national securities markets, including but not limited to broker-
dealers, exchanges, and clearing agencies.  The Exchange Act empowers the SEC to
write rules to, among other things, protect investors who use the services of those
participants and provide for stability of the nation’s securities markets.
B. Crypto Assets and Crypto Trading Platforms
1. Crypto Assets
18. As used herein, the terms “crypto asset,” “digital asset,” or “token”
generally refer to an asset issued and/or transferred using blockchain or distributed
ledger technology, including assets referred to colloquially as “cryptocurrencies,”
“virtual currencies,” and digital “coins.”
19. A blockchain or distributed ledger is a database spread across a network
of computers that records transactions in theoretically unchangeable, digitally
recorded data packages, referred to as “blocks.”  These systems typically rely on
cryptographic techniques to secure recording of transactions.
20. Some crypto assets are “native” to a particular blockchain, meaning that
they are the blockchain’s core asset that is integral to how the blockchain functions.
In contrast, other crypto assets may be non-native and are built on top of an existing

COMPLAINT
7

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

blockchain.
21. Some crypto assets may provide a holder with certain pre-determined
rights, coded into the software itself, such as the right to “burn” (or destroy) the asset
in order to propose transactions on the asset’s blockchain, or to interact with other
portions of the blockchain’s existing or yet-to-be-developed protocols and software.
22. Crypto asset owners typically store key information about their crypto
assets on a piece of hardware or software called a “crypto wallet.”  The primary
purpose of a crypto wallet is to store the “public key” and the “private key”
associated with a crypto asset so that the user can make transactions on the associated
blockchain.  The public key is colloquially known as the user’s blockchain “address”
and can be freely shared with others.  The private key is analogous to a password and
confers the ability to transfer a crypto asset.  Therefore, whoever controls the private
key controls the crypto asset associated with that key.  Crypto wallets can reside on
devices that are connected to the internet (sometimes called “hot wallets”), or on
devices that are not connected to the internet (sometimes called “cold wallets” or
“cold storage”).  Although, all wallets are at risk of being compromised or “hacked,”
hot wallets are at greater risk because their internet connectivity makes them easier to
access remotely.
23. Crypto assets can be transferred directly on the relevant blockchain or
through a third-party intermediary.  The transfer of a crypto asset from one person to
another that is verified and recorded on the relevant blockchain’s publicly-available
ledger is known as an “on-chain” transaction.  The reliability of on-chain crypto asset
transfers is one of the core functionalities of blockchain technology, as described in
Section B.2 below.
24. Crypto asset transactions that occur without being submitted to, verified,
or recorded on a blockchain are known as “off-chain” transactions.  For example, the
transfer of crypto assets between two customers on the same centralized trading
platform, such as Kraken’s, is an off-chain transaction.

COMPLAINT
8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

2. Consensus Mechanisms and Validation of Transactions on a
Blockchain
25. Blockchains typically employ a “consensus mechanism”   that, among
other things, aims to achieve agreement among users as to a data value or as to the
state of the ledger.
26. A consensus mechanism describes the particular protocol used by a
blockchain to agree on, among other things, which ledger transactions are valid, when
and how to update the blockchain, and whether to compensate certain participants for
validating transactions and adding new blocks.  There can be multiple compensation
sources for consensus mechanisms under the terms of the blockchain protocol,
including from fees charged to those transacting on the blockchain, or through the
creation or “mining” of additional amounts of the blockchain’s native crypto asset.
27. “Proof of work” and “proof of stake” are two of the most prevalent
consensus mechanisms used by blockchains.  Proof of work, the mechanism used by
the Bitcoin blockchain, involves a network of computers, known as “miners,”
expending computational effort to guess the value of a predetermined number.  The
first miner to successfully guess this number earns the right to update the blockchain
with a block of transactions and is rewarded with the blockchain’s native crypto asset.
Proof of stake, the consensus mechanism currently used on the Ethereum blockchain,
involves selecting “validators”   from a network of crypto asset holders who have
committed or “staked” a minimum number of crypto assets.
3. The Offer and Sale of Crypto Assets
28. Persons have offered and sold crypto assets in capital-raising events in
exchange for consideration, including but not limited to through so-called “initial
coin offerings” or “ICOs,” “crowdsales,” or public “token sales.”  In some instances,
the entities offering or selling the crypto assets may release a “whitepaper” or other
marketing materials describing a project to which the asset relates, the terms of the
offering, and any rights associated with the asset.

COMPLAINT
9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

29. Some issuers continue to sell the crypto assets after the initial offer and
sale, including directly or indirectly by selling them on crypto asset trading platforms.
4. Crypto Asset Trading Platforms
30. Crypto asset trading platforms—like Kraken’s—are marketplaces that
offer a variety of services relating to crypto assets, often including brokerage, trading,
custody, and settlement services.
31. Crypto asset trading platform interfaces—like Kraken’s—also look
similar to traditional custodial securities brokerage platforms.  Whether web-,
desktop-, or mobile-based, application programming interfaces (APIs), or other
software, these crypto asset trading platform interfaces typically emulate those
offered within the traditional securities markets: they show order books of the various
assets available to trade and historical trading information like high and low prices,
trading volumes, and capitalizations which serve in part to help investors recognize
market opportunities.
32. Crypto asset trading platforms allow their customers to deposit fiat (legal
tender issued by a country) into bank accounts and crypto assets into crypto wallets
controlled by the platform, and then to purchase and sell crypto assets for fiat or other
crypto assets.  These transactions can be finalized on-chain, with the intermediary
transferring the purchased crypto asset from the seller’s account to the buyer’s crypto
wallet.  Or, if the purchaser has an account with the intermediary and customer assets
are stored collectively in what is called an omnibus wallet, then the transactions can
be finalized off-chain, with the platform recording the necessary debits and credits
internally, without having to transfer crypto assets from one blockchain address to
another.
33. By possessing and controlling the fiat and crypto assets deposited and/or
traded by their customers, crypto asset trading platforms function as central
depositories.
34. However, unlike in traditional securities markets, crypto asset trading

COMPLAINT
10

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

platforms (including that of Kraken) perform various other functions, in that they also
typically solicit, accept, and handle customer orders for securities; allow for the
interaction and intermediation of multiple bids and offers resulting in purchases and
sales; act as an intermediary in making payments or deliveries, or both; and maintain
a central securities depository for the settlement of securities transactions.
35. By contrast, a registered national securities exchange submits
information regarding executed trades to a registered clearing agency that takes
responsibility for ensuring settlement finality and safekeeping of the assets being
traded and, in doing so, protects investors’ interests.  Thus, registered national
securities exchanges typically do not assume possession or control of the underlying
assets being traded.  Moreover, crypto asset trading platforms usually settle
transactions by updating internal records with each investor’s positions, a function
typically carried out by clearing agencies and broker-dealers in compliant securities
markets.
36. Likewise, crypto asset trading platforms typically perform roles
traditionally assigned to broker-dealers in compliant securities markets, such as
effecting securities transactions on behalf of their customers, without the platforms
following or even acknowledging the legal obligations and restrictions on activities
that accompany status as a broker-dealer.
C. The SEC’s “DAO Report”
37. On July 25, 2017, the SEC issued the Report of Investigation Pursuant to
Section 21(a) of the Securities Exchange Act of 1934: The DAO (the “DAO
Report”), advising “those who would use ... distributed ledger or blockchain-enabled
means for capital raising[] to take appropriate steps to ensure compliance with the
U.S. federal securities laws,” and finding that the offering of crypto assets at issue in
the DAO Report were offerings of securities.
38. The DAO Report also advised that “any entity or person engaging in the
activities of an exchange must register as a national securities exchange or operate

COMPLAINT
11

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

pursuant to an exemption from such registration,” and “stress[ed] the obligation to
comply with the registration provisions of the federal securities laws with respect to
products and platforms involving emerging technologies and new investor
interfaces.”  The DAO Report also found that the trading platforms at issue there
“provided users with an electronic system that matched orders from multiple parties
to buy and sell [the crypto asset securities at issue] for execution based on non-
discretionary methods” and therefore “appear to have satisfied the criteria” for being
an exchange under the Exchange Act.
VI. FACTUAL ALLEGATIONS
A. Kraken’s Operations
39. In 2013, Kraken launched its “ Kraken Trading Platform,” which allows
customers to buy and sell crypto assets through an   online market.  On its website,
Kraken describes the Kraken Trading Platform as “one of the world’s largest digital
asset exchanges” and advertises that it has more than nine million retail and
institutional customers located in over 190 countries.
40. With the launch of the Kraken Trading Platform, Kraken also began
providing services for customers to open accounts, deposit funds, enter orders, and
trade crypto assets (“Kraken Services”).
41. Today, Kraken’s Trading Platform resembles those found in the
traditional securities industry with a matching engine, customer interface
applications, a range of order types, and advanced trading tools.  From its start in
2013 to the present (the “Relevant Period”),  the Kraken Trading Platform and Kraken
Services have evolved into an expansive online trading operation that lists more than
220 crypto assets and permits margin trading while offering securities trading
services such as an over-the-counter trading desk (“OTC Desk”), “instant buy”
features, and multiple applications and pathways for customers to interface with the
Kraken Trading Platform and Kraken Services.
42. Through the Kraken Trading Platform and Kraken Services,  Kraken

COMPLAINT
12

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

facilitates transactions in crypto assets in multiple ways.  This includes: (1) allowing
customers to submit orders for crypto assets and operating a system that attempts to
match those orders; (2) opening and maintaining customer accounts and holding
funds and crypto assets that have been transferred to or purchased through Kraken by
customers; (3) operating “Instant Buy,” where Kraken acts as the counterparty for a
customer’s request to buy or sell crypto assets; (4) operating the OTC Desk, which
facilitates large crypto asset orders; (5) operating applications that allow customers to
access their accounts and place and direct orders; and (6) offering margin lending for
trading in crypto assets on the Kraken Trading Platform.
43. In 2020 and 2021 together, Kraken earned more than $43 billion in
revenue from trading-based transactions, including from fees charged to customers,
sales of crypto assets to customers, and proprietary trading.
44. The Kraken Trading Platform and Kraken Services are available to both
retail and institutional customers, including to customers inside and outside the
United States.
45. The Kraken Trading Platform’s servers are located in the United States,
and are the means through which the platform operates a single set of order books
and a   matching engine.  Kraken does not segregate or segment the order books based
on geography or local operating entity.
46. Payward utilizes a single set of Terms of Service to cover the Kraken
Trading Platform and Kraken Services.  According to Kraken’s Terms of Service, the
Kraken Trading Platform and Kraken Services are offered through “local operating
entities,” which are wholly owned subsidiaries of Payward.  For customers residing in
the United States, the local operating entity is Payward Ventures.
47. Despite the geographic designations referenced in the Terms of Service,
Payward’s operations are not geographically segregated, allowing U.S. customers to
trade crypto assets regardless of where Kraken’s operations occur.  Personnel of
various local operating entities are cross-staffed according to product or service (not

COMPLAINT
13

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

by region) and report to Payward executive management.  For example, personnel of
the Kraken Trading Platform and OTC Desk ultimately report to Payward’s chief
operating officer.  Payward’s current and former chief executive officers participated
in promotional videos and media interviews promoting the Kraken Trading Platform.
Moreover, Payward’s marketing materials to venture capital investors do not
differentiate between Payward and these local operating entities.
48. The crypto assets made available for trading on the Kraken Trading
Platform and through the Kraken Services may be bought, sold, or exchanged for
consideration, including U.S. dollars, other fiat currencies, or other crypto assets.
49. Each unit of a particular crypto asset on the Kraken Trading Platform
trades at the same price as another unit of that same crypto asset.
50. These crypto assets are interchangeable (e.g., any “FIL” crypto asset or
fraction thereof is just like any other FIL crypto asset) on the Kraken Trading
Platform.  Accordingly, to the extent the assets change in price on the Kraken Trading
Platform, all tokens of the same asset increase or decrease in price in the same
amounts and to the same extent, such that one token is equal in value to any other one
token, on a pro rata basis.
51. However, investors may buy or sell crypto assets through the Kraken
Services at prices different than the contemporaneous price on the Kraken Trading
Platform.  For example, Kraken may sell to an investor a crypto asset through its
Instant Buy feature at a different price then the last executed trade or current offer on
the Kraken Trading Platform.
52. Nevertheless, the purchase of any particular unit of a   crypto asset does
not appear to give an investor any special rights not available to any other investor in
that crypto asset, such as separately managed accounts, or different capital
appreciation as to the value of that crypto asset.  This includes assets purchased on
the Kraken Trading Platform and assets purchased through the Instant Buy feature.
53. The crypto assets on the Kraken Trading Platform are available for sale

COMPLAINT
14

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

broadly to any person who creates an account with Kraken.  Kraken applications
display information (like asset price changes) in a format highly similar to trading
applications offered by registered broker-dealers in the traditional securities markets.
Kraken makes these crypto assets available for trading without restricting transactions
to those who might acquire or treat the asset as something other than as an
investment.
54. Kraken customers can access asset-specific webpages from the “Crypto
Prices” page on Kraken’s website.  There, customers can click on the name of a
particular crypto asset and are redirected to a page where Kraken provides additional
information about that crypto asset.  The information on each asset-specific page
includes: (i) an “about” section describing the crypto asset; (ii) a “who created”
section describing the team of people who created or launched the crypto asset and
are developing the network for the crypto asset; (iii) a “how does it work” section that
describes the protocol and blockchain for the crypto asset and any parameters or
characteristics of the crypto asset; (iv) a roadmap section describing the anticipated
development of the crypto network or project; (v) a section describing various
analysts assessments about the future price of the crypto asset; (vi) historical
information about the “price” of the asset including its “all-time high” price during
the past year and the “price change” over the last 24 hours and the last year stated as a
percentage return change; (vii) a link to another page about the crypto asset to “learn
more about” it; (viii) links to purchase the crypto asset on the Kraken Trading
Platform or through the Kraken Services and a description of the other crypto assets
owned by owners of the particular crypto asset, and (ix) information specifically
promoting a purchase of the asset as an investment into the asset’s promoter’s efforts
to develop, create, grow, and/or maintain the asset's ecosystem in the hope that this
will increase the asset’s value.
55. Because Kraken has not registered as a broker, dealer, national securities
exchange, or clearing agency, there is no formal mechanism to ensure the accuracy or

COMPLAINT
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

consistency of the information Kraken selectively discloses about the crypto assets it
makes available for trading or about its own operations.
56. Kraken does not restrict how many units of a crypto asset any given
investor may purchase.  Moreover, investors are not required to purchase quantities
tied to a purported non-investment “use” that may exist for the asset, if any.  To the
contrary, investors may purchase crypto assets in any amount and for any purpose.
57. The crypto assets made available for trading on the Kraken Trading
Platform and through the Kraken Services are transferable and immediately eligible
for resale on the Kraken Trading Platform and through the Kraken Services (both
subject to settlement) without any apparent restrictions on resale (including as to the
prices or amounts of resale, or the identity of the new buyers).
B. Many of the Crypto Assets Available Through Kraken Are
Securities
58. Throughout the Relevant Period, Kraken has made available for trading
many “crypto assets securities.”  These crypto asset securities are investment
contracts represented by the underlying crypto asset.  In fact, Kraken currently makes
available for trading crypto assets that have been the subject of prior SEC
enforcement actions based upon their status as crypto asset securities, including
crypto assets trading under the symbols ADA, AXS, ALGO, ATOM, CHZ, COTI,
DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SOL, which
were alleged in one or more of the following actions against other unregistered
intermediaries:  SEC v. Bittrex, No. 2:23-cv-580 (W.D. Wash. filed April 17, 2023);
SEC v. Binance Holdings Ltd., Civ. No. 23-1599 (D.D.C. filed June 5, 2023); SEC v.
Coinbase, Inc., No. 23-cv-4738 (S.D.N.Y. filed June 6, 2023).
59. For purposes of prevailing on the Exchange Act claims set forth herein,
the SEC need only establish that Kraken has engaged in regulated activities relating
to a single crypto asset security during the Relevant Period.  Nevertheless, set forth
herein are details regarding a non-exhaustive list of 11 crypto asset securities

COMPLAINT
16

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

available on the Kraken Trading Platform and through the Kraken Services under the
following trading symbols: ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA,
MATIC, NEAR, OMG, and SOL (the “Kraken-Traded Securities”).
60. Each of these Kraken-Traded Securities was offered and sold on the
Kraken Trading Platform or through the Kraken Services during the Relevant Period.
61. Each of the Kraken-Traded Securities was offered and sold as part of an
investment contract.
62. Based on the public statements of their respective issuers and
promoters—at least some of which were rebroadcast by Kraken itself on the Kraken
Trading Platform—a reasonable investor would have understood the offer and sale of
each of the Kraken-Traded Securities as offers and sales of investment contracts.
Specifically, purchasers of the Kraken-Traded Securities would reasonably have
expected to profit from the efforts of these issuers and promoters to grow and
maintain the technology platforms and blockchain ecosystems associated with these
crypto assets because such growth or operations could in turn increase the price of the
underlying crypto asset and/or provide increased value to holders of the Kraken-
Traded Securities.
63. Further, the economic reality of the offerings as presented by their
respective issuers and promoters—and rebroadcast by Kraken itself—would have
indicated to a reasonable investor that future profits through the increased value of
the Kraken-Traded Securities would come through the efforts of these issuers and
promoters.
64. In light of the ongoing statements and efforts of these issuers and
promoters, such as those set forth below, this expectation would have persisted
whether the investor acquired the Kraken-Traded Securities from the issuer or from
other investors.
65. For example, FIL is the native crypto token of the Filecoin network, a
self-described open-source data storage network that runs on a blockchain created by

COMPLAINT
17

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Protocol Labs, Inc.  Protocol Labs conducted initial sales of FIL in 2017, saying the
sales “raised the funding necessary to grow our team, to create the network, and build
all the software tools needed to operate and use the network.”  Underscoring the
aligned financial incentives between the network and the FIL token, Protocol Labs
publicly stated, “Filecoin success will reward the investment of supporters like you
by simultaneously driving down the cost of storage and increasing the value of the
Filecoin tokens that incentivize miners to provide storage.”
66. FIL has been available for purchase and sale on the Kraken Trading
Platform and through the Kraken Services since October 2020.  And Kraken’s    own
public statements about FIL have since reinforced the expectation of profits from an
investment in FIL due to the managerial efforts of Protocol Labs.  As Kraken has
stated on its website: “If the Filecoin network grows and more users trust it with their
data, and more miners supply disk-space, then the amount of transactions requiring
FIL should grow.  The price of FIL should rise since the amount of FIL available is
limited.”
67. Section V.E   of this Complaint provides further allegations specific to the
11 Kraken-Traded Securities,  detailing the development of these crypto assets and the
public statements and economic realities based upon which reasonable investors
would have expected to profit from these crypto assets.
C. Kraken Was Required to Register with the Commission
68. Because the crypto assets available through the Kraken Trading Platform
and the Kraken Services included crypto asset securities traded as investment
contracts, Kraken was subject to U.S. securities laws.
69. As previously noted, to fulfill the purposes of the Exchange Act,
Congress imposed registration and disclosure obligations on certain defined
participants in the national securities markets, including but not limited to brokers,
dealers, exchanges, and clearing agencies.
70. During the Relevant Period, Kraken acted as an exchange, broker,

COMPLAINT
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

dealer, and clearing agency with respect to crypto asset securities.
71. Nonetheless, Kraken has never registered with the Commission as a
national securities exchange, broker, dealer, or clearing agency.  Moreover, there is
no exemption from registration with the Commission that would apply to Kraken.
1. Kraken Failed to Register as a National Securities Exchange
a. Registration of Exchanges
72. In enacting registration provisions for national securities exchanges,
Congress found in Section 2(3) of the Exchange Act [15 U.S.C. §78b(3)] that:
Frequently the prices of securities on such exchanges and
markets are susceptible to manipulation and control, and the
dissemination of such prices gives rise to excessive
speculation, resulting in sudden and unreasonable
fluctuations in the prices of securities which (a) cause
alternately unreasonable expansion and unreasonable
contraction of the volume of credit available for trade,
transportation, and industry in interstate commerce, (b)
hinder the proper appraisal of the value of securities and
thus prevent a fair calculation of taxes owing to the United
States and to the several States by owners, buyers, and
sellers of securities, and (c) prevent the fair valuation of
collateral for bank loans and/or obstruct the effective
operation of the national banking system and Federal
Reserve System.

73. Accordingly, Section 5 of the Exchange Act [15 U.S.C. § 78e] requires
an organization, association, or group of persons that meets the definition of
“exchange” under Section 3(a)(1) of the Exchange Act, unless otherwise exempt, to
register with the Commission as a national securities exchange pursuant to Section 6
of the Exchange Act.
74. Section 3(a)(1) of the Exchange Act [15 U.S.C. § 78c(a)(1)] defines
“exchange” to mean “any organization, association, or group of persons, whether
incorporated or unincorporated, which constitutes, maintains, or provides a market
place or facilities for bringing together purchasers and sellers of securities or for
otherwise performing with respect to securities the functions commonly performed by
a stock exchange as that term is generally understood, and includes the market place
and the market facilities maintained by such exchange.”

COMPLAINT
19

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

75. Exchange Act Rule 3b-16(a) [17 C.F.R. § 240.3b-16(a)] further defines
certain terms in the definition of “exchange” under Section 3(a)(1) of the Exchange
Act, including “[a]n organization, association, or group of persons,” as one that: “(1)
[b]rings together the orders for securities of multiple buyers and sellers; and (2)
[u]ses established, non-discretionary methods (whether by providing a trading facility
or by setting rules) under which such orders interact with each other, and the buyers
and sellers entering such orders agree to the terms of a trade.”
76. Registration of a trading platform as an “exchange” under the Exchange
Act is a bedrock Congressional requirement that permits the SEC to carry out its role
overseeing the national securities markets.
77. For example, registered exchanges must enact rules that, as required by
Section 6 of the Exchange Act, are “designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade ... and, in general,
to protect investors and the public interest.”
78. These rules are subject to review by the SEC under Section 19 of the
Exchange Act [15 U.S.C. § 78s], both at the time of initial registration and
subsequently whenever the exchange wishes to add, delete, or amend a rule.  This
review process is designed to ensure that securities marketplaces operate in a manner
consistent with the Exchange Act as their practices and procedures evolve over time
and to protect investors and the integrity of securities markets that affect national
commerce and the economy.
b. Kraken Operates an Unregistered Securities Exchange
79. During the Relevant Period, Kraken used means and instrumentalities of
interstate commerce to bring together the orders of multiple buyers and sellers of
crypto asset securities, including the Kraken-Traded Securities.  Using a trading
facility programmed with non-discretionary rules under which orders interact, Kraken
connected these buyers and sellers to agree upon terms for trades in these securities.
As a result, Kraken maintained and provided a marketplace for bringing together

COMPLAINT
20

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

buyers and sellers of securities.  Kraken was therefore required to register with the
Commission as a national securities exchange or operate pursuant to an exemption to
such registration but failed to do so.
80. The Kraken Trading Platform makes available to its customers more
than 220 crypto assets, including crypto asset securities, for trading.
81. Kraken operates the Kraken Trading Platform through the use of a
“trading engine” that matches customer orders based, in part, on price and time
priority.
82. Orders are stored in Kraken’s central limit order book, a   common
functionality for many exchanges that tracks the price, size, time of submission, and
other characteristics of each submitted order.  Kraken maintains a separate order book
for each crypto asset trading pair.
83. Kraken not only engaged in the conduct of a securities exchange, it
described itself as one.  Kraken describes its operations, the Kraken Trading
Platform, and the Kraken Services using terms from securities laws and the securities
industry.  For example, Kraken calls its Trading Platform an “Exchange” or the
“Kraken Exchange.”
84. According to a document prepared by Kraken’s finance department in
September 2022:
[The] trading platform (the “Exchange” or “Kraken Exchange”) allows
institutional and retail investors (the ‘customers’) to purchase, sell or
exchange [a crypto asset] for another [crypto asset] or fiat currency.
Customers can initiate a limit order, market order, and certain other order
types similar to those available on a traditional commodities or stock
exchanges.  Kraken then fills those orders using an internally developed
matching algorithm that allows multiple order transactions being matched
amongst each other.

85. Kraken further acted as an exchange by: (i) handling customer
applications, order entries, and displaying order information; (ii) offering a variety of
order types; (iii) charging fees per executed order; and (iv) matching the orders of
buyers and sellers.

COMPLAINT
21

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

i. Customer Applications, Order Entry, and Display
86. Kraken allows customers to enter orders to trade on the Kraken Trading
Platform via Kraken’s customer applications or an API.  An API is a software
intermediary permitting two programs to communicate.
87. Kraken itself also may enter orders into the Kraken Trading Platform as
principal and be a counterparty to trades against customers.  Customers are not
provided with any disclosures as to whether the counterparty to their trade on the
Kraken Trading Platform is another Kraken customer or Kraken acting as principal,
or any additional protections when Kraken is acting as principal.
88. Through Kraken’s customer applications or API, Kraken customers can
place a variety of buy and sell orders for crypto assets, including crypto asset
securities.  Through the Kraken Trading Platform, Kraken then matches the orders of
buyers and sellers with each other.
89. Kraken provides customers with a live feed of Kraken’s order book—
which shows bids and offers for each crypto asset available for trading on the
platform—as well as a crypto asset’s trading history on the Kraken Trading Platform.
A customer may also view their own account information, including the customer’s
trade history, and the prices and sizes of its executed trades.
90. Kraken has multiple customer applications, including web, mobile, and
desktop applications.  Some are designed to be “beginner friendly,” and others are
designed for a “professional trading experience.”
91. The “professional” style applications offer features that mimic trading
terminals offered or used by registered securities intermediaries.  For example,
Kraken advertises its “Kraken Pro” application as “a one-stop destination for
advanced crypto traders” that is “fully equipped with must-have advanced trading
tools and features, addressing all your trading needs in one place,” where traders can
“identify trades with full-featured charting, technical indicators and compare up to 4
markets at once” as well as “monitor the action with live order books and streaming

COMPLAINT
22

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

trades.”
92. From 2017 until it was retired on September 30, 2023, Kraken offered an
application named Cryptowatch which it described as a “premium trading terminal.”
Through Cryptowatch, Kraken provided “trading services for over 25 cryptocurrency
exchanges,” including the Kraken Trading Platform.  Cryptowatch, among other
things, allowed Kraken customers to place orders on “multiple crypto exchanges from
a single platform.”  For example, Kraken customers who were also customers of one
of those “exchanges” could place orders on that trading platform using the
Cryptowatch application’s automated connection.
93. Kraken’s website (www.Kraken.com) also functioned as a web-based
application providing customers with an interface for trading crypto assets on the
Kraken Trading Platform.  A tab or link on the Kraken website called “Markets” led
customers to a page listing the current price for the hundreds of crypto assets
available for trading on the Kraken Trading Platform, and also displayed the high and
low price for each asset over the previous 24 hours, the percentage change in price
during that same period, and the total value of all trading of that asset that occurred
over that period.
94. The crypto assets listed on the “Markets” page were listed by full name
and trading symbol and displayed in descending order from largest to smallest based
on the previous 24-hour trading volume.  The “Markets” page also displayed
approximately five crypto assets under the category of “trending” for those assets that
had the highest volume of trading over the previous 24 hours and those that had the
highest percentage of gains or losses in value over that same period.
95. Another tab or link on the Kraken Trading Platform website called
“Trade” led visitors to a listing of the order book for the various crypto assets
available for trade on the platform.  One side of the order book displays the current
buy orders in descending order from highest bid price to lowest while the other side
of the order book displays the sell orders in ascending order from lowest asking price

COMPLAINT
23

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

to the highest.
96. The “Trade” page also displayed a “price chart” graph for the selected
crypto asset which reflects the trading volume of the token over a selected period of
time (i.e., 1 day, 5 days, 1 month, 3 months, 6 months, 1 year, 5 years) and a “depth
chart” graph which displayed the current “mid-market price” (i.e., the middle point
between the highest bid price and lowest asking price for a particular asset) and the
“spread” (i.e., the difference between the highest bid and lowest asking price) for that
asset.
ii. Order Types
97. Kraken offers the ability for buyers and sellers to place multiple order
types, including but not limited to, market (trade at the best available price in the
order book), limit (trade at a specified price or better), stop loss (market order
triggered at the stop price), take profit (market order entered when last traded price
reaches a specified price), and settle position (closes a customer’s margin position).
98. Kraken requires customers, when submitting orders, to input various
parameters, including those similar to parameters used in trading non-crypto
securities: crypto asset trading symbol, size, price, and order type.  Customers may
also place automated, algorithmic trades using Kraken’s APIs.
99. Kraken offers certain customers the ability to trade using margin on the
Kraken Trading Platform.  Kraken extends margin credit (from its proprietary
inventory) to these customers for buying and selling certain crypto assets, including
crypto asset securities.  Kraken charges percentage-based fees for opening a
leveraged position as well as for maintaining a leveraged position.
100. Unless trading on margin, a Kraken customer must have an available
balance of the relevant crypto asset or fiat currency in their account to cover the total
value of the order plus any applicable fees.
101. All orders are stored in Kraken’s order book.

COMPLAINT
24

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

iii. Fees
102. Similar to brokers and exchanges in the traditional securities markets,
Kraken charges a fee or commission on each executed trade.
103. Kraken’s transaction-based fees vary depending on the trading pair, a
user’s 30-day trading volume, and other factors.
104. Kraken’s website states: “[T]rading fees are reduced according to the
USD value of [the customer’s] total volume traded by [a customer’s] account over the
previous 30 days.”  Kraken’s website states that Kraken “reward[s] user[s] who drive
liquidity to Kraken” and “[t]he more you trade, the more you save.”
105. More specifically, Kraken uses a maker-taker fee schedule with volume
incentives based on the customer’s previous 30-day activity.  In a maker-taker model,
an executed order that takes liquidity is charged a fee, while the resting order that
makes liquidity (the order against which the taker order executes) is given a rebate,
which is generally less than the amount of the taker fee, allowing the platform to keep
the difference.
106. Kraken’s maker fee ranges from 0.00% to 0.16% of the principal amount
traded, depending on the trader’s 30-day volume.
107. The taker fee ranges from 0.10% to 0.26% of the principal amount
traded, depending on the trader’s 30-day volume.  Kraken deducts the taker fee for
each transaction from the customer’s Kraken account.
iv. Order Matching
108. The Kraken Tr  ading Platform matches the orders of buyers and sellers
pursuant to rules that Kraken has programmed into its matching engine.
109. After a buyer or seller enters an order, Kraken’s software performs
certain checks, such as for erroneous order conditions, disruptive pricing, self-trading
and other violations of Kraken policies, and ensures that the customer has sufficient
funds (in the form of crypto assets, fiat currency, or margin) to settle any resulting
transaction and pay applicable fees.

COMPLAINT
25

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

110. If the order passes these checks, Kraken sends the order to its central
limit order book where it is eligible to be matched and executed by the Kraken
Trading Platform’s automated matching engine (the “Kraken Matching Engine”).
111. Aside from periods of maintenance or outages, the Kraken Trading
Platform is always open for trades, operating 24 hours a day, every day.
112. The servers for the Kraken Matching Engine are located within the
United States.
113. If an order is not immediately executed upon entry, the Kraken Trading
Platform will include the order in its order book for potential matching with one or
more orders from other buyers or sellers.  The platform will then update the
customer’s account balance to reflect the open order.
114. There is an order book for each crypto asset trading pair, e.g., an order
for trading U.S. Dollars to the crypto asset security called “Cardano” and represented
by the trading symbol “ADA” may be referred to as the “ADA-USD”   order book.
The Kraken Matching Engine matches orders based on price-time priority within that
order book.
115. Kraken describes publicly on its website some of the “detailed trading
rules for operating” the Kraken Trading Platform.  Kraken’s website informs traders
that: (i) orders placed on Kraken’s order book are prioritized according to price; (ii)
buy orders are prioritized in decreasing order of price with the highest bid placed at
the top of the order book; (iii) sell orders are prioritized in increasing order of price
with the lowest ask placed at the top of the order book; (iv) orders with same price
are aggregated in the order book and are filled in a first in, first out manner; and (v)
conditional orders are stored separately from the order book on a “not held” or
reserved basis and are placed on the order book when an asset’s price meets the pre-
specified condition and price.
v. Direct Sales
116. Kraken does not restrict issuers or promoters from publicly offering and

COMPLAINT
26

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

selling crypto assets, including each of the Kraken-Traded Securities, on the Kraken
Trading Platform.  Nor does Kraken implement any policies or procedures to prevent
issuers from offering and selling their crypto assets to the public on the Kraken
Trading Platform.
117. Multiple issuers sold their respective crypto assets on the Kraken
Trading Platform through market makers.
118. Kraken is aware that crypto asset issuers offer and sell their own
holdings via the Kraken Trading Platform, in part because Kraken itself facilitated
them doing so.
119. For example, the issuer of ALGO (the native crypto asset to the
Algorand blockchain) used a market maker (“Market Maker 1”) to offer and sell
ALGO, including on the Kraken Trading Platform.
120. In April 2020, a representative of Market Maker 1 emailed Kraken
representatives, stating in part, “As you know we are providing liquidity for a number
of customers (token issuers), Algorand is the only one from our existing customers
that is listed in Kraken and we would like to know if we can help you in any way
with your due diligence with other [Market Maker 1] customers that would in my
opinion be suited for Kraken.”
121. In response, a Kraken representative stated, in part, “I saw [Market
Maker 1] and assumed straight market making-related discussions” and that another
Kraken representative was “moving forward with all new asset reviews.”  A call was
arranged to “cover both new asset DD + MM discussions.”
122. In this context, “DD” is shorthand for “due diligence” and “MM” is
shorthand for “market maker.”
123. In May 2020, the Kraken representative emailed the Market Maker 1
representative, stating in part, “I hope that you have been well since we spoke a few
weeks ago.  As a quick follow-up, I wanted to provide some general benefits and
liquidity guidelines that we look for in MM parents (attached).  It would also be great

COMPLAINT
27

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

to explore how Kraken and [Market Maker 1] can further collaborate going forward.
Do you have for a call early next week to discuss these?”
124. Market Maker 1 also offered and sold ADA, FIL, FLOW, ICP, MATIC
and NEAR via the Kraken Trading Platform on behalf of their respective issuers.
125. Other market makers offered and sold crypto assets via the Kraken
Trading Platform on behalf of their issuers.
126. The issuers of the following Kraken-Traded Securities all sold their
respective crypto asset securities on the Kraken Trading Platform through market
makers during the Relevant Period:  ADA, ALGO, FIL, FLOW, ICP, MATIC, and
NEAR.
127. Such sales were part of the respective issuer’s offers and sales of their
crypto asset securities into the public trading markets.
128. Kraken did not inquire or query whether a market maker was selling
crypto assets on behalf of an issuer.
2. Kraken Failed to Register as a Broker-Dealer
a. Registration of Broker-Dealers
129. Absent an applicable exemption or exception, Section 15(a) of the
Exchange Act [15 U.S.C. § 78o(a)] generally requires brokers and dealers to register
with the SEC, and a broker or dealer must also become a member of one or more
“self-regulatory organizations” (“SROs”), which in turn require members to adhere to
rules governing the activities of the SRO’s members.
130. Section 3(a)(4) of the Exchange Act [15 U.S.C. § 78c(a)(4)] defines
“broker” generally as “any person engaged in the business of effecting transactions in
securities for the account of others.”
131. Section 3(a)(5) of the Exchange Act [15 U.S.C. § 78c(a)(5)] defines
“dealer” generally as “any person engaged in the business of buying and selling
securities for his own account, through a broker or otherwise.”
132. The regulatory regime applicable to broker-dealers is a cornerstone of

COMPLAINT
28

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

the federal securities laws and provides important safeguards to investors and market
participants.  Registered broker-dealers are subject to comprehensive regulation and
rules that include recordkeeping and reporting obligations, SEC and SRO
examination, and general and specific requirements aimed at addressing conflicts of
interest, among other things.  All of these rules and regulations are critical to the
soundness of the national securities markets and to protecting investors in the public
markets.
133. To preserve the maintenance of fair and orderly markets, avoid conflicts
of interests, and protect investors, Section 11(a) of the Exchange Act [15 U.S.C. §
78k(a)] prohibits broker-dealers from effecting transactions for their own accounts on
exchanges where they are a member.
134. Further, broker-dealers must abide by certain financial responsibility
requirements under the Exchange Act.  For example, broker-dealers are required to
make and maintain certain business records to assist the firm in accounting for its
activities and to assist securities regulators in examining the firm’s compliance with
securities laws.  17 C.F.R. § 240.17a-3, 17a-4.  Broker-dealers are also prohibited
under what is known as the “Customer Protection Rule” from using customer
securities and cash to finance their own business.  17 C.F.R. § 240.15c3-3.  By
segregating customer securities and cash from a firm’s proprietary business activities,
the rule increases the likelihood that customer assets will be readily available to be
returned to customers if a broker-dealer fails.
b. Kraken Functions as a Broker
135. During the Relevant Period, Kraken used, and continues to use, means
and instrumentalities of interstate commerce to effect transactions in crypto asset
securities for the accounts of others, and regularly  participated in these securities
transactions at key points in the chain of distribution.
136. Kraken solicited, and continues to solicit, potential investors in crypto
asset securities and hold itself out as selling crypto asset securities.

COMPLAINT
29

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

137. As alleged above, Kraken provided, and continues to provide,   a system
for customers to enter orders in securities, to route   and handle   those customer orders,
and to take   compensation by charging customers fees for these services.
138. Kraken handled, and continues to handle, customer funds and customers’
crypto asset securities (which it commingled and treated as fungible with its own
crypto assets) through Kraken-controlled accounts and crypto wallets.
139. Kraken was therefore required to register with the Commission as a
broker but did not do so.
i. Kraken Views Itself as a Broker and Solicits
Customers for Trading Crypto Asset Securities
140. In internal documents, Kraken calls itself a “broker” and states that its
operations are similar to brokers in traditional markets.
141. Internally, Kraken identifies itself as a broker in other ways.  For
example, on a Kraken corporate organizational chart, Kraken labels Payward
Ventures (along with other Kraken entities) as a client-facing “Broker Entity.”
142. In its internal policies, Kraken refers to Payward Ventures as a “Local
Spot Broker” or the acronym “LSB.”
143. Kraken further refers to its customer accounts containing crypto assets or
fiat as a customer’s “brokerage account.”
144. Kraken regularly solicits customers to open accounts at Kraken to trade
crypto assets, including the Kraken-Traded Securities, on the Kraken Trading
Platform and through the Kraken Services, including through marketing and posts on
its website, applications, and on social media.
145. For example, Kraken has posted on X (formerly known as Twitter), with
the handle “@KrakenFX”   information about: crypto assets, including crypto asset
securities, available to trade on the Kraken Trading Platform, including new assets or
those newly available for margin trading; Kraken’s promotions for customers; trading
support notifications; enhanced trading features of the Kraken Trading Platform; links

COMPLAINT
30

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

to Kraken interviews and publications; and responses to specific posts by Kraken
customers.
146. Kraken regularly posts comments in the Kraken forum on Reddit,
including referring customers to Kraken’s support services and providing updates
about the status of the Kraken Trading Platform.
147. Kraken regularly posts to its blog (blog.kraken.com) promotional
materials and information encouraging customers to trade crypto assets, including
crypto asset securities, on the Kraken Trading Platform and through the Kraken
Services.
148. Through these various communication channels, Kraken provides
instructions to potential customers on how to open a trading account.
149. Through its website and applications, Kraken provides detailed
information about the crypto assets, including the Kraken-Traded Securities, that
trade on the Kraken Trading Platform and through the Kraken Services, including
price charts and market statistics, price movements, volume, and information about
how to trade those crypto assets.  For example, Kraken maintains a “Learn” webpage
and online “Crypto Guides” that provide resources regarding crypto assets and
trading crypto assets, as well as a “Prices” webpage that highlights top “Trending
Cryptocurrencies” and crypto assets with the “Biggest Gains.”
150. Kraken also has marketed monetary incentives and promotions aimed at
attracting more customers to the Kraken Trading Platform.  For example, in or around
November 2019, Kraken launched the “Kraken Affiliate Program,” which rewards
existing Kraken customers who refer new customers to Kraken.  Under the Kraken
Affiliate Program, existing Kraken customers receive “20% on the trading fees
collected from clients you refer to us for the lifetime of the client with Kraken – up to
$1,000 USD payout per referral.”
ii. Kraken Controls Customer Assets
151. In 2021, Kraken held more than $5 billion in customer fiat and more

COMPLAINT
31

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

than $33 billion in customer crypto assets.
152. Kraken maintains its customers’ crypto assets and funds in crypto
wallets and bank accounts that it controls.
153. To deposit crypto assets into a Kraken trading account, customers must
transfer crypto assets from an existing crypto wallet to a Kraken-controlled crypto
wallet.  Similarly, to deposit fiat currency into a Kraken trading account, customers
must make a deposit to a Kraken-controlled bank account using a wire transfer, bank
transfer, or other means.
154. When a customer submits a request to withdraw funds or crypto assets,
Kraken transfers them from a Kraken-controlled bank account or crypto wallet to the
customer’s designated account or crypto wallet.
155. According to Kraken’s terms of service, all digital assets held in a
Kraken account are “custodial assets held by Payward for” the benefit of the
customer.  Kraken disclaims any ownership or title to digital assets held in Kraken
customer accounts.
156.   Kraken uses shared blockchain addresses called “omnibus accounts,”
which it controls, to hold crypto assets on behalf of customers.  Kraken holds the
private keys for these addresses and maintains internal, or off-chain ledgers, to record
individual customer holdings for their respective accounts.
157. In documents provided to its auditor, Kraken stated “crypto assets are
not separated by type of client, geography, margin vs. non-margin etc.”
iii. Kraken Offers Trading on Margin
158. During the Relevant Period, Kraken offered, and continues to offer,
extensions of margin credit (from its proprietary inventory) to customers for buying
and selling certain crypto assets, including crypto asset securities.
159. Kraken advertises on its website that it offers “over 100 margin-enabled
markets for you to buy (go ‘long’) or sell (go ‘short’) a growing number of
cryptocurrencies with up to 5x leverage.”

COMPLAINT
32

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

160. If executed, margin transactions are executed on the Kraken Trading
Platform using the Kraken Matching Engine.
161. Kraken maintains physical or constructive custody of all crypto assets or
fiat currency using margin for the duration of a customer’s open margined position.
162. Kraken charges additional fees for margin orders.
163. Kraken charges percentage-based fees, based on the amount of margin
credit extended, for opening a leveraged position as well as maintaining a leveraged
position.
c. Kraken Functions as a Dealer
164. During the Relevant Period, Kraken used means and instrumentalities of
interstate commerce to effect transactions in crypto asset securities while engaged in
the business of buying and selling securities for its own account.  Through the Kraken
Services, such as Instant Buy and the OTC Desk, as well as its own proprietary
trading, Kraken bought and sold crypto asset securities on multiple platforms,
including the Kraken Trading Platform, as part of its regular business.  Kraken was
therefore required to register with the Commission as a securities dealer but did not
do so.
i. Instant Buy
165. Kraken Instant Buy allows customers to “instantly” buy, sell, or
“convert” crypto assets, including the Kraken-Traded Securities, with Kraken acting
as the counterparty in all cases.
166. Kraken’s website states that the Instant Buy feature “allows you to
convert between any crypto and cash assets.”
167. To use the service, a customer logs in to her account and click Buy, Sell,
or Convert.  The customer would then be presented with a default asset and a price
offered by Kraken to Buy, Sell, or Convert the asset.
168. To change the asset, the customer opens a search field where she can
scroll through a list of assets (shown with the asset’s price) or type in the name of the

COMPLAINT
33

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

asset to Buy, Sell, or Convert.
169. Kraken charges users of the Instant Buy feature a fee and in certain
cases, a “spread.”
170. Kraken does not publish a general fee schedule or explain when or how a
“spread” will be charged in addition to the fee.  Instead, Kraken displays the fees for
the particular transaction.
171. The customer must agree to the price for the asset offered by Instant Buy
as well as the transaction fee, which Kraken assesses if the transaction is executed.
172. The price quote Kraken provides to a customer in the Instant Buy feature
is derived from Kraken’s review of the pending orders on its order book on the
Kraken Trading Platform.
173. For example, if a customer wants to purchase 10 units of the Kraken-
Traded Security Cardano (ADA) using Instant Buy, Kraken reviews the order book
for ADA on the Kraken Trading Platform and presents a price quote valid for a
specified period of time and the fees it would charge to complete the transaction.  If
the customer accepts, Kraken then uses or leverages its own capital or crypto assets to
acquire the 10 ADA on the Kraken Trading Platform, and then sells these 10 ADA to
its customer and promptly settles the trade by ledger debits and credits.
ii. OTC Desk
174.  During the Relevant Period, Kraken offered the OTC Desk as a
“premium service that allows traders to execute orders off the open Kraken
exchange” for large orders of crypto assets, including the Kraken-Traded Securities,
valued at $100,000 or more (although it may service smaller orders).
175. Customers may send a   request for a quote to the OTC Desk.  Kraken
would typically respond with a quote at which it would be willing to trade with the
customer.
176. Kraken acts as principal to fill orders placed through the OTC Desk.
177. To fill the orders placed with the OTC Desk, Kraken uses proprietary

COMPLAINT
34

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

assets, places orders (in its own account) on the Kraken Trading Platform, uses its
own inventory, or places orders on third-party trading platforms.
178. Customers interface with the OTC Desk through email or telephone, or
by logging into their Kraken account and using the OTC Desk’s online portal or an
online chat function.
179. On its website, Kraken states, “We do not charge you any fees for our
[OTC Desk] service.  The bid or offer price we show is the ‘all inclusive’ price.”
180. Kraken’s Terms of Service state that it may charge a mark-up or mark-
down “between the price [Kraken] buys or sells an Asset in a transaction with you
and the price it is able to obtain in subsequent transactions with third parties, and . . .
such spread will not be reflected in the transaction fees you are charged at the time of
your purchase or sale.”
181. Kraken’s OTC Desk settles transactions in various ways depending on
the manner it filled the customer’s order.
182. Kraken offered the OTC desk for orders of crypto assets, including
Kraken-Traded Securities.
iii. Proprietary Trading
183.   During the Relevant Period, Kraken also engaged in proprietary trading
of crypto assets, including crypto asset securities and Kraken-Traded Securities, for
its own account separate from the Kraken Services.
184. According to Kraken’s financial statements, it stopped engaging in
proprietary trading separate from the Kraken Services during the second quarter of
2020.
185. From the beginning of 2020 until it stopped in the second quarter,
Kraken generated approximately $47 million in revenue from the proprietary trading
of crypto assets.

COMPLAINT
35

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

3. Kraken Failed to Register as a Clearing Agency
a. Registration of Clearing Agencies
186. Congress has determined that “[t]he prompt and accurate clearance and
settlement of securities transactions, including the transfer of record ownership and
the safeguarding of securities and funds related thereto, are necessary for the
protection of investors and persons facilitating transactions by and acting on behalf of
investors.”  15 U.S.C. § 78q-1.
187. Section 17A(b) of the Exchange Act [15 U.S.C. § 78q-1(b)] accordingly
generally makes it unlawful “for any clearing agency, unless registered in accordance
with this subsection, directly or indirectly, to make use of the mails or any means or
instrumentality of interstate commerce to perform the functions of a clearing agency
with respect to any security.”
188. Section 3(a)(23)(A) of the Exchange Act [15 U.S.C. § 78c(a)(23)(A)]
defines the term “clearing agency” as “any person who acts as an intermediary in
making payments or deliveries or both in connection with transactions in securities or
who provides facilities for comparison of data respecting the terms of settlement of
securities transactions, to reduce the number of settlements of securities transactions,
or for the allocation of securities settlement responsibilities,” as well as “any person
... who (i) acts as a custodian of securities in connection with a system for the central
handling of securities whereby all securities of a particular class or series of any
issuer deposited within the system are treated as fungible and may be transferred,
loaned, or pledged by bookkeeping entry without physical delivery of securities
certificates, or (ii) otherwise permits or facilitates the settlement of securities
transactions or the hypothecation or lending of securities without physical delivery of
securities certificates.”
189. Registered clearing agencies are subject to comprehensive regulation—
including recordkeeping requirements and SEC examination—under the Exchange
Act and the rules thereunder, providing important safeguards to investors and market

COMPLAINT
36

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

participants, and to the maintenance of fair competition.  Moreover, properly
registered clearing agencies must enact a set of rules to govern their and their
members’ behavior, and these rules are subject to review by the SEC.
b. Kraken Functions as a Clearing Agency
190. During the Relevant Period, Kraken’s conduct in the settlement of crypto
asset securities transactions and as a security depository with respect to crypto asset
securities traded on the Kraken Trading Platform and through the Kraken Services,
including Instant Buy and the OTC Desk, constitutes clearing agency activity.
Kraken was therefore required to register with the Commission as a clearing agency
but did not do so.
191. Kraken has and continues to act as an intermediary in making payments
an  d deliveries when facilitating the settlement of crypto asset securities transactions,
including transactions in the Kraken-Traded Securities.
192. After a customer order is matched, resulting in a trade (whether against
another customer or Kraken itself), Kraken settles the trade through its internal ledger
system by debiting and crediting the relevant balances of funds or crypto assets in the
customer’s (or customers’) account(s).
193. According to a Kraken internal document, its internal ledgers are
“designed to function similarly to a ‘stock record’ account, like the one that is
typically maintained by a broker-dealer that custodies its customers’ holdings.”
194. In this way, all trades on Kraken’s Trading Platform “occur ‘off-chain’
on the Kraken Exchange,” meaning that they are recorded and settled on Kraken’s
internal ledgers without any crypto asset being transferred from one blockchain
address to another (i.e., “on-chain”).
195. According to trading rules posted on Kraken’s website, after matching
buy and sell orders, “Kraken settles all filled orders immediately, by debiting and
crediting the relevant balances of assets in both traders’ accounts.”
196. Kraken’s Terms of Service state that Kraken will use “commercially

COMPLAINT
37

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

reasonable efforts to settle trades” within two days of execution.
197. Kraken has and continues to act as a security depository for crypto asset
securities, including the Kraken-Traded Securities, that are traded on the Kraken
Trading Platform and through the Kraken Services.
198. Kraken holds these crypto assets in omnibus wallets for which Kraken
holds the private keys, and Kraken provides a system for the central handling of
securities whereby crypto asset securities are treated as fungible and ownership
entitlements are transferred by bookkeeping entry without any on-chain transfers.
D. Kraken’s Business Practices Create Heightened Risks for its
Customers
199.  As an unregistered entity that nonetheless operates as a securities
broker, dealer, exchange, and clearing agency, Kraken operates in ways that would
not be permissible under the federal securities laws and regulations.
1. Kraken Fails to Separate the Competing Functions of Its
Business
200. In U.S. securities markets, the functions of “exchanges,” “broker-
dealers,” and “clearing agencies” described above are typically carried out by
separate legal entities that are independently registered and regulated by the SEC.
Separation of these core functions aims to minimize conflicts between the interests of
securities intermediaries and the investors they serve.  Registration and concomitant
disclosure obligations allow the SEC to oversee the business of intermediaries and
their relationship with investors, in order to, among other things, protect investors
from manipulation, fraud, and other abuses.
201. While providing the services of an exchange, broker, dealer, and clearing
agency to its customers, Kraken does not separate these functions.
202. Investors in securities markets do not interact directly with exchanges or
clearing agencies but instead are customers of broker-dealers who effect transactions
on investors’ behalf.  Only broker-dealers (or natural persons associated with a

COMPLAINT
38

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

broker-dealer) may become members of a national securities exchange.  In addition,
broker-dealers who have customers must become members of the Financial Industry
Regulatory Authority (“FINRA”), an SRO that imposes its own rules and oversight
over broker-dealers, particularly as to protecting retail investors.
203. Kraken is not a member of FINRA.
204. Registered national securities exchanges and clearing agencies are also
SROs, and therefore must submit all of their proposed rules and rule changes to the
SEC for review.
205. Kraken does not submit its rules or proposed rules to the SEC for
review.
206. As noted, the Exchange Act also subjects registered intermediaries to
important record keeping and inspection requirements.  For example, Section 17 of
the Exchange Act [15 U.S.C. § 78q] requires registered national securities exchanges,
broker-dealers, and clearing agencies to make and keep records as the SEC prescribes
by rule, and subjects those records to reasonable periodic, special, or other
examinations by representatives of the SEC.
207. Kraken does not submit itself to examinations by representatives of the
SEC.
208. These provisions are designed to ensure that intermediaries follow the
rules designed to protect investors and to promote fair and efficient operation of the
securities markets, given their importance to the economic health of the nation.
These provisions also seek to ensure, among other things, that investors’ securities
orders are handled fairly and transparently, that securities transactions result in
settlement finality, and that investors’ assets are protected and can be recovered if
necessary.
209. In failing to comply with any SEC registration requirements, Kraken
puts its customers’ assets at a higher risk of loss than customers of registered
securities intermediaries.

COMPLAINT
39

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

2. Kraken Commingles Its Customers’ Crypto Assets and Fiat
with Its Own
210. The U.S. securities laws protect customer assets by, among other things,
ringfencing customer assets from corporate use.  Had it registered as a broker-dealer,
Kraken would be required to appropriately account for and segregate customer cash
and securities and would be subject to examination, inspection, and disclosure
requirements aimed at detecting and preventing the failure to appropriately segregate
customer assets.
211. Kraken’s Terms of Service stated that “custodial assets held by Payward
[are] for [a customer’s] benefit” and title is “not transferred to Payward.”
212. Nonetheless, Kraken’s commingles customer crypto assets with its own.
213. Commingling customer and proprietary assets creates a risk that, when
customers request withdrawals of their assets, those assets might be encumbered
(e.g., due to hypothecation, or liens or other interests being filed against such
property to secure an obligation of Kraken) or gone completely.
214. Concerning Kraken’s custody of crypto assets, in its audit plan for 2022,
Kraken’s independent auditor stated: “There is a significant risk of loss of custodial
(and proprietary) digital assets through theft/loss of public keys or improper controls
over accounting for custodial digital assets that are comingled between customers and
with the Company’s proprietary digital assets.”
215. Kraken’s Terms of Service also stated that “Payward makes no
warranty” that customers’ crypto assets “are held by [the customer] free and clear of
any security interest or other lien or encumbrance by Payward or others, including but
not limited to Payward’s creditors.”
216. With respect to fiat, Kraken maintains bank accounts that are designated
as custodial accounts for the purpose of holding customer fiat.
217. Kraken maintains separate bank accounts that are designated as
operational accounts for the purpose of holding corporate fiat.

COMPLAINT
40

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

218. Yet, Kraken commingles corporate and customer fiat in some of these
accounts.
219. In its 2020 and 2021 financial statements, Kraken describes how it may
commingle custodial funds with its own.  Kraken’s financial statements state that
“[a]mounts shown as Customer custodial funds are restricted to use based on the
terms of service with our customers.  Such funds may be in separate accounts or
commingled with cash that is unrestricted.”  “Unrestricted” cash is Kraken’s
proprietary or corporate cash for which it has “unrestricted rights of withdrawal and
use....”
220. Kraken’s independent auditor has observed that as of December 31,
2021, approximately $33.6 million of customer custodial fiat appeared to be in
Kraken’s operational bank accounts.  Kraken’s independent auditor similarly
observed that as of December 31, 2020, approximately $30.8 million of customer
custodial fiat appeared to be in Kraken’s operational accounts.
221. Separately, Kraken treats some fiat in custodial accounts as its own –
and not the customers’ – supposedly because Kraken’s customers owe Kraken fees
arising from the customers’ trading.  For example, Kraken has at times paid
operational expenses using funds held in customer custodial accounts.  This is
another example of improper commingling of funds that increases investor risk and in
which registered securities intermediaries are prohibited from engaging.
222. Kraken does not disclose to its customers that Kraken commingles
customer and corporate fiat in either customer custodial accounts or Kraken’s
corporate operating accounts .
3. Kraken’s    Internal Control Failures
223. As part of the audit of Kraken’s 2021 financial statements, Kraken’s
independent auditor identified multiple control deficiencies and informed Kraken’s
board of directors of a   significant deficiency in the company’s internal controls.
224. In 2023, Kraken found errors relating to customer custodial cash and

COMPLAINT
41

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

crypto assets held for customers in 2020 and 2021.
225. These errors were a result of Kraken’s poor recordkeeping practices and
failure to properly record margin transactions, underscoring the deficient internal
controls at the company.
226. In materials provided to its auditor, Kraken stated: “In August 2023, the
Company self-identified the possibility of an error.”    This error was largely based on
Kraken’s failure to establish a sub-ledger before offering its margin lending product.
227. Kraken’s auditor determined that these errors were material to the 2020
and 2021 financial statements of Payward and Payward Ventures.
E. Crypto Assets Securities Available Through Kraken
228. As previously alleged in Section B, Kraken has made available for
trading on its platform and through its services many crypto assets that are offered
and sold as investment contracts and thus are securities.  Each of these crypto asset
securities was offered and sold on the Kraken Trading Platform or through the
Kraken Services during the Relevant Period.  Each of the crypto asset securities was
sold as part of an investment contract, which as discussed involves an investment of
money in a common enterprise from which the investor reasonably expects profits or
returns derived from the entrepreneurial or managerial efforts of others.  Set forth
below are details regarding certain previously identified Kraken-Traded Securities, 11
crypto asset securities which were available on the Kraken Trading Platform and
through the Kraken Services.
1. ADA
229. “ADA” is the native token of the Cardano blockchain.  The Cardano
blockchain was created in 2015 by an Ethereum co-founder, Charles Hoskinson, and
an Ethereum operations manager, Jeremy Wood.  As described on Cardano’s website,
the Cardano blockchain protocol is built on its own proof-of-stake consensus protocol
called Ouroboros, which is purportedly energy efficient.  Hoskinson and Wood
created ADA and purported to limit the supply of ADA to 45 billion tokens.  From

COMPLAINT
42

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

2015 to 2017, Input Output Hong Kong (“IOHK”), a company founded by Hoskinson
and Wood, conducted a token sale during which they sold approximately 25.9 billion
ADA in exchange for bitcoin, at what equates to an average price of $0.0024 per
token, raising approximately $62 million for Cardano.
230. From the time of its offering and continuing through the Relevant
Period, ADA was offered and sold as an investment contact and is    therefore a
security.
231. The price of all ADA tokens goes up or down together.
232. Today, three entities are responsible for Cardano: (1) the Cardano
Foundation, a Swiss entity that is the legal custodian of the Cardano protocol and
owner of its brand; (2) IOHK, an engineering company controlled by Hoskinson and
Wood responsible for designing, building, and maintaining the Cardano blockchain;
and (3) Emurgo, an entity with offices in New York and California that, according to
its website, is “essentially the for-profit arm of Cardano,” endeavoring “to advance
the platform and drive adoption through commercial ventures.”  As explained on the
Cardano website, “IOHK develops the technology, the Cardano Foundation is
responsible for supervising development and promoting Cardano, while Emurgo
drives commercial adoptions.”  These three entities collectively received 5.2 billion
ADA following the initial mining of ADA, or approximately 16.7% of the initial
token supply of 31.1 billion ADA.
233. These three entities have used the proceeds from ADA sales to fund the
development, marketing, business operations, and growth of the Cardano protocol.
For example, investor funds were used to enact the Cardano Roadmap created by
IOHK—specifically, to develop each of the Cardano development “eras” as shown in
the following screenshot from the Cardano website:

COMPLAINT
43

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

234. Kraken has made ADA available for buying, selling, and trading on the
Kraken Trading Platform and through the Kraken Services since approximately
September 2018.
235. The information publicly disseminated by Cardano, IOHK, and Emurgo
would lead a reasonable investor, including those who purchased ADA since
September 2018, to view ADA as an investment.  Specifically, investors would
reasonably expect to profit from holding ADA based on the efforts of these groups to
grow the Cardano platform because this growth would in turn increase the demand
for and the value of ADA.
236. In public statements on Twitter and other social media, as well as on
their respective websites, including statements made while ADA was available to
trade on the Kraken Trading Platform and through the Kraken Services, the Cardano
Foundation, IOHK, and Emurgo have touted their expertise in developing blockchain
networks and described the efforts they have made and will continue to make to
develop the Cardano protocol and blockchain and attract users to the technology.
These statements include:
(a) an “ask me anything” video stream posted by Charles Hoskinson
at IOHK in or about October 2018 in which he answered questions posed by the live
public audience and in which he stated that he believes ADA will achieve his goal of
a future market capitalization of $1 trillion;
(b) a blog post by Charles Hoskinson at IOHK in or around January
2020 about how the decade from 2020 to 2029 will be the decade of Cardano and
which stated, “[a]s we exit 2020 and throughout the next decade, incentives will be a

COMPLAINT
44

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

source of continuous research.  The better we get, the faster the feedback loop
becomes, the faster we can grow to achieve a billion users and become a truly global
social operating system that is beneficial to everyone.  With all that being said,
commercialization, technology, and incentives are the three things that will need to be
aligned for us to achieve that coveted number one spot.  We are building Cardano for
a reason...it is a commercial project and we want to see it grow”;
(c) an announcement by IOHK in or around September 2021 about
the creation of smart contracts on the protocol, which supposedly would “pav[e] the
way” for additional demand for the blockchain protocol;
(d) a blog post by IOHK in or around November 2022 describing its
efforts to introduce “innovations, new functionality, and new features” to the
blockchain; and
(e) a blog post by IOHK on or around November 17, 2022, touting
ADA being “hosted on more than 30 cryptocurrency exchanges,” and outlining
IOHK’s plans to “improv[e] the underlying performance of the Cardano network to
better support growth and adoption of thousands of applications with high transaction
volumes” while giving specific examples of how this would be achieved.
237. Public statements made by Kraken to investors about ADA and the
Cardano Platform reinforced investors’ reasonable expectation of profits from an
investment in ADA due to the managerial efforts of Cardano, IOHK, and Emurgohas.
238. For example, on its website, Kraken describes for investors Cardano’s
history, team, and development.  Specifically, Kraken’s website states that:
A team of experts in the [crypto asset] and blockchain technology industries
created Caradano (ADA), led by Jeremy Wood and Charles
Hoskinson...Together, Wood and Hoskinson formed Input Output Hong
Kong (IOHK), the research and development company behind Cardano....
The Cardano Foundation is a non-profit organization based in Switzerland
that oversees the development and adoption of Cardano.  It promotes the
use and development of Cardano, provides education and resources, and
governs the Cardano ecosystem . . . .  A for-profit investment arm called
Emurgo provides support to prospective Cardano developers and promotes
the business integration of Cardano’s blockchain services.

COMPLAINT
45

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

2. ALGO
239. Algorand is a blockchain protocol founded by Silvio Micali. The
Algorand blockchain uses a consensus algorithm it calls “pure proof-of-stake,” in
which each user’s ability to influence the choice of a new block is proportional to its
stake (number of tokens) in the system.
240. “ALGO” is the native token of the Algorand blockchain, and has a
maximum supply of 10 billion ALGO minted at the launch of the Algorand network.
Because ALGO is the native token of the Algorand blockchain, those utilizing the
Algorand blockchain need to hold (and potentially stake) certain amounts of ALGO.
241. From the time of its offering and continuing through the Relevant
Period, ALGO was offered and sold as an investment contract and is    therefore a
security.
242. The price of all ALGO tokens goes up or down together.
243. The Algorand Foundation Ltd. conducted an initial ALGO token sale on
or about June 19, 2019, selling 25 million tokens at $2.40 per ALGO, raising
approximately $60 million.  In advance of the token sale, the Algorand Foundation
promoted the token sale on Twitter and included a link to its website.
244. The Algorand Foundation promoted the June 19, 2019, token sale in part
with a refund policy that allowed ALGO investors to return the ALGO to the
Algorand Foundation one year later at 90% of the original purchase price.  The
Algorand Foundation explained the economic rationale behind the refund policy by
noting its own belief in and commitment to the value of ALGO, stating: “We believe
in the underlying value of the Algorand blockchain, the Algo, and the potential of the
borderless economy.  Our goal is to invest in the growth, sustainability and
performance of that economy.”
245. In promoting the ALGO token sale, the Algorand Foundation tied the
potential growth of the Algorand blockchain to potential demand for the ALGO token
itself, and to its own commitment to preserving a price floor for ALGO.

COMPLAINT
46

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

246. In or around August 2019, the Algorand Foundation publicly offered
ALGO investors an early refund opportunity, and ALGO investors returned a total of
approximately 20 million ALGO tokens to the Algorand Foundation in exchange for
a refund that was 85% of the original purchase price.  In or around June 2020, ALGO
investors who did not refund their ALGO tokens in August 2019 were publicly
offered a second refund window. ALGO investors returned a total of approximately 5
million ALGO tokens for a refund that was 90% of the original purchase price.
247. Through its rewards programs and incentive structures, the Algorand
Foundation continued distributing tokens after the June 2019 token sale.  As of
September 2022, approximately 6.9 billion ALGO were in circulation.
248. Today, ALGO is available for buying, selling, and trading on crypto
asset trading platforms in exchange for fiat currency or certain crypto assets,
including bitcoin.  Kraken made ALGO available for buying, selling, and trading on
the Kraken Trading Platform and through the Kraken Services in January 2020.
249. From the time of its offering and continuing through the Relevant
Period, ALGO was offered and sold on the Kraken Trading Platform and through the
Kraken Services as an investment contract and is    therefore a security.
250. Today, two entities are responsible for Algorand: (1) the Algorand
Foundation, an organization purportedly focused on Algorand “protocol governance,
token dynamics and supporting grassroots, open-source development on the Algorand
ecosystem,” which was incorporated in Singapore; and (2) Algorand, Inc., a company
purportedly focused on “layer-1 development of the Algorand Protocol and enabling
Enterprise adoption of Algorand blockchain technology.”
251. The Algorand Foundation and Algorand, Inc. purportedly collaborate on
projects and initiatives for the Algorand community.
252. Shortly before the June 19, 2019, ALGO token sale, Steven Kokinos, the
CEO of Algorand, Inc., posted a publicly available article stating: “(a) We will be
holding our founder’s tokens for the long term and will not be selling them. (b) We

COMPLAINT
47

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

will use our founder’s tokens to participate in consensus and assist in securing the
network, though we will never represent more than 49% of the voting. (c) We will
use our founder’s tokens to support the ecosystem and encourage development.”
253. The Algorand Foundation purportedly owns 500 million ALGO tokens
and the participation and governance rewards associated with those tokens.  Also,
members of the Algorand Foundation’s board of directors and its advisory
committees receive ALGO as compensation.
254. In addition to the tokens it owns, as of September 2022, the Algorand
Foundation also controls over 3 billion ALGO tokens in wallets publicly identified as
for “Community & Governance Rewards,” “Ecosystem Support,” and “Foundation
Endowment,” signaling to the public that the Algorand Foundation would use the
ALGO tokens to support the ALGO economy or ecosystem as well as to reward itself
and participants in this ecosystem.
255. The information publicly disseminated by Algorand, Inc. and the
Algorand Foundation would lead a reasonable investor, including those who
purchased ALGO since January 2020, to view ALGO as an investment.  Specifically,
investors would reasonably expect to profit from holding ALGO based on the efforts
of these groups to grow the Algorand blockchain and the technologies associated with
it   because this growth would in turn increase the demand for and the value of ALGO.
256. In public statements on Twitter, as well as on their respective websites,
Algorand, Inc. and the Algorand Foundation promote the Algorand protocol.
257. Until approximately May 14, 2022, the Algorand Foundation promoted
that ALGO investors could receive participation rewards (purportedly a form of
staking by delegation) by “participation in the Algorand ecosystem via holding Algo
in an online wallet.”
258. As of approximately May 14, 2022, the Algorand Foundation publicly
stated that it would replace the participation rewards that ALGO holders were entitled
to receive with so-called governance rewards.  The Algorand Foundation described

COMPLAINT
48

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

“Governance” as a way for investors to make investment returns on their ALGO
purchases—stating it is “a decentralized program which allows Algo holders to vote
on the future of Algorand” and “the best way to earn rewards for holding Algo, with
APY% of 10.02% -  14.05% seen in previous periods.”
259. The Algorand, Inc. and Algorand Foundation websites tout their teams’
technical experience and expertise in the areas of cryptography and business
development.  For example, Algorand, Inc.’s website states: “Blending technical
mastery and professional stability, the Algorand team consists of internationally
recognized researchers, mathematicians, cryptographers, and economists along with
proven business leaders from global technology companies.”
260. In a March 2022 report, the Algorand Foundation publicly stated that it
had started a new program to incentivize the “growth of the ecosystem, which is the
fundamental need of a maturing blockchain.  The program includes a series of loans
to help the growth of our DeFi network and to expand the institutional investments in
the ecosystem . . . .  The Algorand Ecosystem team facilitates the development and
growth of the ecosystem and developer pipeline including undiluted funding,
technical onboarding and standardization conventions for ASAs, Wallets and AVM.”
261. Algorand, Inc. and the Algorand Foundation also take steps to
incentivize third parties to participate in and attract users to the ALGO protocol.  For
example, in or around February 2022, the Algorand Foundation announced a $10
million incentive for developers that could make the Algorand blockchain compatible
with applications built on the Ethereum blockchain.
262. Also in or around February 2022, the Algorand Foundation announced a
section of its website called AlgoHub, “a virtual community designed to grow the
pipeline of #Algorand developers.”
263. These statements led reasonable ALGO investors throughout the
Relevant Period to expect that the demand for ALGO would likely increase based on
Algorand, Inc.’s and Algorand Foundation’s efforts to increase demand for the

COMPLAINT
49

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Algorand technology, thereby resulting in a price increase for ALGO.
264. Public statements made by Kraken to investors about ALGO and the
Algorand blockchain reinforced investors’ reasonable expectation of profits from an
investment in ALGO due to the managerial efforts of Algorand, Inc. and the
Algorand Foundation.
265. For example, on its website, Kraken provides investors with analysis
about the price of ALGO.  Specifically, Kraken’s website states:
Algorand is a new public blockchain, meaning its technology, while novel,
has not yet seen much testing under real-world market conditions....
Investors may also see Algorand as a viable part of a cryptocurrency
portfolio should they believe that proof-of-stake blockchains, which lower
the cost of participating in a blockchain’s operation, will ultimately prove
more successful in the market.

3. ATOM
266. “ATOM” is the native crypto asset of the Cosmos Hub.  The Cosmos
project was launched in 2017 by Jae Kwon and Ethan Buchman.  According to the
Cosmos website (https://cosmos.network), Cosmos is an ecosystem of blockchains
designed to scale and interoperate with each other, and the Cosmos team aims to
“create an Internet of Blockchains” or “a network of blockchains able to
communicate with each other in a decentralized way.”
267. Cosmos is built on a proof-of-stake consensus mechanism.
268. The Cosmos Hub is a central blockchain that provides services to other
blockchains connected to it, including “the largest interchain token exchange, shared
security through interchain security, bridges to ethereum (ETH) and bitcoin (BTC),
and secure custodianship of digital assets.”  Cosmos described the Cosmos Hub as
“the first hub among many hubs that [w]as launched within the Cosmos Network of
sovereign blockchains.”
269. ATOM is described as “a license for the holder to vote, validate, or
delegate to other validators” and “can also be used to pay for transaction fees to
mitigate spam.”

COMPLAINT
50

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

270. In 2017, the Interchain Foundation (the “ICF”), a Swiss non-profit
organization of which Buchman is President, sold ATOM by conducting what it
termed the “Cosmos Fundraiser.”  These so  -called “donations” were to be used for
the development of the Cosmos network.  Pursuant to this offering, participants
received ATOM tokens in exchange for Bitcoin or Ethereum tokens.  The ICF offered
ATOM at a value of $0.10 per token, with a 25 percent discount on that price for
partnering “strategic funders” and a 15 percent discount for individual “Pre-
Fundraisers.”  By April 2017, ICF had raised approximately $17.3 million in BTC
and ETH through its “fundraiser” by selling ATOM tokens.
271. From the time of its offering and continuing through the Relevant
Period, ATOM was offered and sold as an investment contract and therefore a
security.
272. The price of all ATOM tokens goes up or down together.
273. At least four entities are currently or have been significantly involved in
the development of Cosmos: (1) the ICF, which was created in 2017 by Kwon and
Buchman and was formed “to support the development of Cosmos and the ecosystem
that will contribute to the Cosmos Network”; (2) Interchain GmbH, LLC, a German
limited liability company and subsidiary of ICF, which employs a team of
approximately 35 software engineers and operations personnel working primarily on
the Cosmos network; (3) All in Bits, Inc. d/b/a Tendermint (n/k/a Ignite, Inc.)
(“Tendermint”), a Delaware corporation created by Kwon and headquartered in
Berkley, California, with which the ICF contracted in 2017 “to develop the initial
portion of the CESS [Cosmos Essential Software and Services]”; and (4)
NewTendermint, Inc., a Delaware corporation of which Kwon is CEO and which
supports and develops the Cosmos ecosystem.
274. In February 2022, NewTendermint was spun off from All in Bits, Inc.
(d/b/a Tendermint), which was rebranded to and became Ignite, Inc.  Ignite has
focused on developing products and developing tools “to onboard the next wave of

COMPLAINT
51

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

developers and crypto enthusiasts to Cosmos.”
275. ATOM has been available for buying, selling, and trading on the Kraken
Trading Platform and through the Kraken Services since April 2019.
276. The information publicly disseminated by ICF, Kwon, and Buchman
would lead a reasonable investor, including those who purchased ATOM since April
2019, to view ATOM as an investment.  Specifically, ATOM holders would
reasonably expect to profit from the efforts of these entities to grow the Cosmos
protocol because this growth would in turn increase the demand for and value of
ATOM.
277. The ICF collected and pooled the $17.3 million raised from investors in
the Cosmos Fundraiser.  In promoting the Cosmos Fundraiser, the ICF represented
that the funds raised would be deployed to develop the Cosmos network.  For
example, the March 31, 2017, “Cosmos Plan” posted on the Cosmos GitHub page
provided that the raised funds would be used “to contract with entities”—including
Tendermint—“and their agents for the development of the Cosmos Essential
Software and Services (CESS) and to help foster a community around CESS.”  The
ICF later disclosed how they spent investor funds, posting “Projects Funded in 2018”
to the ICF’s public GitHub page.
278. In the 2017 Cosmos Whitepaper and “Fundraiser Plan” (both of which
were publicly available on the Cosmos website), Kwon and Buchman described the
Cosmos Fundraiser and said that the 236 million ATOM tokens initially minted
would be distributed as follows: 10% to the “Cosmos Network Foundation” (the
ICF), 10% to All in Bits, Inc. (Tendermint), 5% to initial or “lead donors,” and 75%
to “the donors of the Cosmos Fundraiser” (investors).
279. In public statements on the Cosmos and ICF websites, including
statements made and available during the period when ATOM was available to trade
on the Kraken Trading Platform, the ICF described its expertise in developing
blockchain networks.  Further it detailed the efforts it and related entities, including

COMPLAINT
52

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Interchain GmbH and Tendermint, were making to develop the Cosmos network and
attract users to the technology.  For example:
(a) Cosmos’s website stated that “Cosmos is supported by the Interchain
Foundation” and identifies Tendermint, Interchain GmbH, and 15 other
“Cosmos core development teams.”
(b) The ICF website stated that it “funds, stewards, and responsibly
advances the Cosmos ecosystem” and that its “core teams maintain the
protocols and applications” in the “Cosmos tech stack” (including
Cosmos Hub and Cosmos SDK).  Further, the site identified 35 “Team”
members, including Cosmos Hub and Cosmos SDK project, strategy,
and developer relations leads, and software and developer relations
engineers,” that “[w]e help support projects like the Cosmos Network.”
In describing the Team’s “Engineering and Product” work, the site said
“[w]e are primarily interested in general purpose technologies that
expand the environment, capabilities, and security of the Cosmos
ecosystem.”
(c) The “Projects Funded in 2018” post on the ICF’s GitHub page (posted in
2019) identified grants, service agreements, and investments to develop
the Cosmos network in 2018.
(d) The ICF website has touted the “Builders Program,” which “provides
mentorship, structured support and access to a wide network of partners”
and “is led by a team experienced in building the ecosystem’s software
and infrastructure.”    The site has said the program “is made by builders
for builders, linking together our team of entrepreneurs, software
engineers and designers with years of experience in building and
launching chains” and is a vehicle for ICF to “help teams navigate the
ecosystem by giving access to our large network of investors, exchanges,
custodians, auditors, development and design agencies, data providers

COMPLAINT
53

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

and infrastructure partners.”
280. Public statements made by Kraken to investors about ATOM and the
Cosmos protocol reinforced investors’ reasonable expectation of profits from an
investment in ATOM due to the managerial efforts of ICF, Kwon, and Buchman.
281. For example, on its website, Kraken describes for investors ICF’s
history, team, and development.  Kraken also provides a link to the Cosmos
“roadmap” for investors to “stay connected on the current development status of
Cosmos” and directs investors to the “Cosmos blog” for regular updates from the
“Cosmos team.”
4. FIL
282. “FIL” is the native crypto asset of the Filecoin network.  The Filecoin
network is an open-source data storage network that runs on a blockchain created by
Protocol Labs, Inc., which describes itself as a research, development, and
deployment lab for network protocols.
283. In or around July 2014, Protocol Labs and its founder and CEO, Juan
Batiz-Benet (“Benet”), published a   whitepaper entitled “Filecoin: A Cryptocurrency
Operated File Storage Network,” which Protocol Labs updated approximately three
years later, setting forth a “path toward the construction of the Filecoin network.”
284. In 2017, Protocol Labs conducted a two-part token sale: first, an
“Advisor Sale” for advisors of Protocol Labs and Filecoin; and second, a “Public
Sale” for the broader community, supposedly limited to “accredited investors”
(collectively “2017 FIL Sales”).  In these sales, investors could use U.S. dollars and
certain crypto assets to buy Filecoin.
285. Protocol Labs ran the Advisor Sale from July 21 to July 24, 2017, and
sold FIL to approximately 150 investors, which included individuals, institutional
investors, trusts, and established syndicate investors.  These investors paid $.075 per
FIL and were offered “vesting/discount choices of 1-3 years and 0-30% discount.”
286. In the August 2017 Public Sale, the FIL price was set based on a “public

COMPLAINT
54

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

sale price function,” described as “price = max ($1, amountRaised / $40,000,000)
USD/FIL” and increased thereafter based on the amount sold.  For the Public Sale,
like the Advisor Sale, investors received discounted pricing for agreeing to longer
vesting periods.
287. From the time of its offering and continuing through the Relevant
Period, FIL was offered and sold as an investment contract and therefore a security.
288. The price of all FIL tokens goes up or down together.
289. In connection with the 2017 FIL Sales, which were effected pursuant to
Simple Agreement for Future Tokens (SAFTs), Protocol Labs filed forms with the
SEC claiming an exemption from registration for the offerings of FIL pursuant to
SAFTs.
290. Protocol Labs reported that they raised more than $205 million for the
development of Filecoin in the 2017 FIL Sales and that the value of FIL increased in
the days following the close of the sale based on the fluctuation in value of certain
invested crypto assets.
291. Protocol Labs pooled investment proceeds from the token sales to fund
the development and growth of the Filecoin network.
292. On October 15, 2020, Protocol Labs launched the mainnet, a publicly
accessible version of the Filecoin network, and FIL began being minted and
distributed.  There was a stated maximum circulating supply of 2,000,000,000 FIL,
meaning that no more than 2 billion FIL will ever be created, with issuance aligning
with network growth.
293. FIL has been available for buying, selling, and trading on the Kraken
Trading Platform and through the Kraken Services since October 2020.
294. Since the October 2020 launch, Protocol Labs has continued to use funds
from the sale of FIL to develop, expand, and promote the Filecoin network.
295. The information Protocol Labs has publicly disseminated, including after
the initial FIL sales, would lead a reasonable investor, including those who have

COMPLAINT
55

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

purchased FIL since October 2020, to view FIL as an investment.  Specifically, FIL
holders would reasonably expect to profit from Protocol Lab’s efforts to grow its
protocol because this growth would in turn increase the demand for and value of FIL.
296. The Protocol Labs Filecoin Team posted about the sale: “The Filecoin
Sale was a critical milestone in the lifetime of the project.  It raised the funding
necessary to grow our team, to create the network, and build all the software tools
needed to operate and use the network.”  They further stated, “Filecoin success will
reward the investment of supporters like you by simultaneously driving down the cost
of storage and increasing the value of the Filecoin tokens that incentivize miners to
provide storage.  We’re thrilled by your widespread, enthusiastic interest and look
forward to staying engaged and including you in our success.”
297. In addition, Benet and the Filecoin team released a document titled,
“Filecoin Token Sale Economics,” that provided information about the 2017 FIL
Sales and the Filecoin network, stating:
Protocol Labs requires significant funding to develop, launch, and grow the
Filecoin network. We must develop all the software required: the mining
software, the client software, user interfaces and apps, network
infrastructure and monitoring, software that third-party wallets and
exchanges need to support Filecoin, integrations with other data storage
software, tooling for web application and dapps to use Filecoin, and much
more. We must deploy the network, facilitate its growth to large scale,
market to and onboard miners and clients, bring key partners into the eco
system, and much more.
298. That document also stated that FIL was to be distributed to groups
“critical to the network’s creation, development, growth, and maintenance” with an
allocation that tied Protocol Labs’ profits to those of FIL holders:
(a) 70% to Filecoin Miners – “For providing data storage service, maintaining
the blockchain, distributing data, running contracts, and more.”
(b) 15% to Protocol Labs – “For research, engineering, deployment, business
development, marketing, distribution, and more.”
(c) 10% to investors – “For funding network development, business
development, partnerships, support, and more.”

COMPLAINT
56

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

(d) 5% to Filecoin Foundation – “For long-term network governance, partner
support, academic grants, public works, community building, etc.”
299. The “Filecoin Token Sale Economics” document further explained: “We
have structured the token sale to reward a large group of people that can help us build
the [Filecoin] network, by selling Filecoin at what we think is a much lower price
than it will be worth some day (caveat: as with any risky investment of course we
cannot make guarantees or predictions).”
300. As described in a July 2017 blog post, the Advisor Sale in particular was
intended, in part, to secure “long-term commitment to and alignment with the
Filecoin network” and “to reward their contributions so far and/or future potential
with the capability to invest early.”
301. The “Filecoin Token Sale Economics” and another document made
available to investors ahead of the 2017 FIL Sales, the Filecoin Primer, stated that
Filecoin purchasers would be able to sell the token on crypto asset trading platforms
in the future.
302. The Filecoin Primer also touted “Large Scale Value Creation,”
explaining that the Filecoin Network: “will create value in a number of ways, and the
total impact of the network can be tremendous.  Growth of the network will drive
demand for the token. The more value created by the Filecoin Network, the more
things people and organizations spend Filecoin on, and the greater the value and
worth of the token.”
303. Similarly, a Confidential Private Placement Offering Memorandum
(“PPM”) in connection with the 2017 FIL Sales stated: “A significant portion of the
proceeds of the Offering will be used by the Company to achieve the Minimum
Viable Product and subsequently to buildout a decentralized storage network,
powered by a blockchain and the Filecoin protocol token.”
304. Moreover, both before and after the 2017 FIL Sales, Protocols Labs
consistently touted its expertise and ability, and led the work to develop the Filecoin

COMPLAINT
57

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

network for launch.  In an August 2, 2017 Q&A, Benet stated: “Over the last few
years, Protocol Labs has proved to the world that we know how to deploy capital to
create valuable projects, valuable technology, and valuable software. . . .  We know
how to deploy capital effectively.  We have great plans for the Filecoin network and
its surrounding ecosystem, at many levels of funding.  We plan to deploy 100s of
millions of dollars over the next few years to make Filecoin the world’s best storage
network, not just the best decentralized storage network.”
305. Benet also addressed the funding needs, pricing, and economics of FIL
in that August 2017 Q&A, stating: “Since we think and are working for Filecoin to be
worth a lot more in the future, then we naturally want to sell it at the highest price the
market will bear.  Subject to reason, if we can sell it higher, then we should.”
306. Benet also explained publicly that Filecoin needed funding in order to be
able to compete: “Our (collective) competition is the massive, centralized cloud
storage companies.  We are talking about the tech titans – AWS, Google Cloud, and
Microsoft Azure – the three biggest companies in the world have cloud businesses
with BILLIONS of dollars in revenues, not just funding.  In order to put up this fight,
we will need significant resources.  Yes, resources in the hundreds of millions will
empower us to develop Filecoin as fast as we can, as well as the dozens of other tools
and services required to make Filecoin a service and ecosystem remotely close to
competitive with the centralized counterparts.”
307. The economic structure of FIL distribution and public statements about
that structure further invited investors to view FIL as an investment in Protocol Labs’
and the Filecoin Foundation’s efforts.  These factors would lead reasonable investors
to conclude that FIL investors’ interests were aligned with those of FIL’s developers.
Specifically, the tokens allocated to Protocol Labs and Filecoin Foundation were to
vest over a six-year period beginning after the network launch.  As stated in the
“Filecoin Token Sale Economics” document, Protocol Labs and the Filecoin
Foundation “aim[ed] to make Filecoin massively valuable in the long-term, and we

COMPLAINT
58

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

want to attract investors similarly interested in long-term value creation and growth”
and “[v]esting creates long-term alignment” because “Protocol Labs and the Filecoin
Foundation are deeply committed for the long-term, and 6-year vesting boldly proves
that to all other network participants.”
308. Filecoin has also implemented a process to “burn” (i.e., destroy) FIL
tokens, thereby reducing the FIL supply.  As with the “burn” mechanisms of other
crypto asset securities, this marketed burning of FIL as part of the Filecoin’s
economic features has led investors reasonably to view their purchase of FIL as
having the potential for profit.
309. Following the release of the protocol in October 2020, Protocol Labs
continued to be heavily involved in the development and promotion of the Filecoin
network and its pursuit of success.
310. In late 2021, Raul Kripalani, a Protocol Labs researcher, introduced the
“Filecoin Virtual Machine” (“FVM”), described as a “core pillar in the next evolution
of the decentralized storage ecosystem.”  On November 6, 2022, Kripalani tweeted,
“These were amazing weeks for the #FVM + team. Momentum and expectation are
through the roof. 100s of teams building on the Wallaby testnet.  Many promising
@Filecoin apps to launch on mainnet the minute FEVM kicks in.  Pumped to be
building the future of $FIL with these rockstars!”  The Protocol Labs Twitter account
has posted updates regarding FVM, including through April 2023.
311. The Protocol Labs team has continued to release “roadmaps” or “master
plans,” available online and through recorded video presentations, that showcase
future development plans for the Filecoin network.  For example, in September 2022,
Benet delivered the keynote address at FIL-Singapore, which “gathered builders from
around the world to build, share experiences, and hear from other community
members on what’s next for the network.”  In his address, Benet presented “The
Filecoin Masterplan,” which included building the world’s largest decentralized
storage network.

COMPLAINT
59

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

312. In a February 3, 2023, Protocol Labs blog post addressing the impact of
the “crypto winter” economic downturn, Benet touted the Filecoin team’s supposed
successes to date in growing the Filecoin ecosystem, “[w]e’ve achieved a tremendous
amount in the past several years -  from Filecoin launch; to scaling IPFS to millions of
users; building one of the fastest growing developer ecosystems; supporting 300+
companies across the network; growing movements like SBS and FTC; launching
testnets for FVM, Saturn, SpaceNet, and Bacalhau just last quarter; and much more.”
313. Public statements made by Kraken about FIL and the Filecoin network
reinforced investors’  reasonable expectation of profits from an investment in FIL due
to the managerial efforts of Protocol Labs.
314. For example, on its website, Kraken provides investors with analysis of
the price of FIL.  Further, Kraken’s website states:
Should Filecoin be able to successfully offer decentralized storage service
that can’t be easily tampered with by corporations or governments, it could
also gain more users, especially if centralized services begin to lose the trust
of their customers.  Like Bitcoin, the total amount of FIL that will ever be
created is also limited, in this case, to 2 billion tokens.  If the Filecoin
network grows and more users trust it with their data, and more miners
supply disk-space, then the amount of transactions requiring FIL should
grow. The price of FIL should rise since the amount of FIL available is
limited.
5. FLOW
315. FLOW is the native token for the Flow blockchain, which was launched
in 2020 by Dapper Labs, an entity incorporated in Canada.  Flow was purportedly
designed as “the foundation for a new generation of games, applications, and the
digital assets that power them.”
316. The Flow website boasts that the Flow proof-of-stake blockchain is
designed in a manner that makes it different, faster, and more efficient than other
blockchain networks due to its “multi-node architecture,” which separates the
functions traditionally performed by one validator (collection, consensus, execution,
and verification) across multiple validator nodes.
317. Between 2019 and 2020, Dapper Labs raised approximately $24.6

COMPLAINT
60

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

million in “pre-launch” funding in two purportedly private fundraising rounds,
including from venture capital firms, in return for convertible notes that were
expected to convert to FLOW tokens.  The FLOW tokens were subject to 24-month
lock-up periods during which they could not be transferred, sold, or used in
transactions.
318. Subsequently, Dapper Labs held another token sale consisting of two
phases, which raised approximately $19 million.  Additionally, Dapper Labs
conducted other sales of FLOW for which it filed forms with the SEC claiming that
the sales were exempt from registration under Rule 506(b) of Regulation D, including
one on September 12, 2019 covering sales to 31 investors in the total amount of
approximately $11.2 million, and two others on December 9 and 15, 2021, each for
sales to a single investor in the amount of approximately $6.47 million and $23
million, respectively.
319. From the time of its offering and continuing through the Relevant
Period, FLOW was offered and sold as an investment contract and therefore a
security.
320. The price of all FLOW tokens goes up or down together.
321. Since approximately January 2021, FLOW has been available for
buying, selling, and trading on the Kraken Trading Platform and through the Kraken
Services.
322. According to the FAQ page on the Flow website: “[FLOW] is the
exclusive token for staking, delegating, paying transaction fees, and paying storage
fees.  It is also the primary token used for buying, selling, and trading assets and
experiences on Flow.”  Approximately 1.25 billion FLOW tokens were initially
created, and as of May 2023, approximately 72% of all FLOW is in circulation.
323. Given that FLOW tokens are required in order to interact with the Flow
blockchain, the demand for and the value of the FLOW token would increase as a
result of the efforts by Dapper Labs and the Flow development team to develop the

COMPLAINT
61

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Flow blockchain network and increase demand for its features.  The increase in value
of FLOW would inure to all FLOW holders—investors and the Dapper Labs/Flow
development team alike.  Dapper Labs and the Flow development team have
promoted this dynamic through the publicly available information they have
disseminated.
324. The information publicly  disseminated by Dapper Labs and the Flow
development team would lead a reasonable investor, including those who purchased
FLOW since January 2021, to view FLOW as an investment.  Specifically, FLOW
holders would reasonably expect to profit from the efforts of these groups to grow the
Flow protocol because this growth would in turn increase the demand for and the
value of FLOW.
325. For example, Flow’s website stated that of the total FLOW supply,
Dapper Labs and the Flow development team collectively received 38%; pre-launch
backers and participants in the 2020 token sale received 30%; and 32% was set aside
for “ecosystem development” and remains under the control of Flow’s management.
This last group of tokens, according to the website, are used to “bootstrap adoption
and reward early participants in the network.”
326. Below is a graph depicting the initial or “Genesis Block” token
distribution of FLOW:

COMPLAINT
62

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

327. This stated distribution of FLOW tied the fortunes of FLOW holders to
each other and to the fortunes of the Flow development team.
328. Flow’s website further highlights its development team and its ability to
grow and develop the Flow blockchain and the value of the FLOW token.  For
example, it states that Flow was “[d]eveloped by the team behind some of the most
successful crypto applications on the Ethereum network” and “Flow has been
developed and brought to market by one of the most innovative and interdisciplinary
teams in the world.”
329. Indeed, according to the Flow website, since the launch of the Flow
blockchain in or around December 2020, due to Dapper Labs’ and others’ efforts,
“Flow’s ecosystem has grown from a small group of enthusiasts to a global
community of over 10,000 developers, over 17 million user accounts, and over 2
million monthly active wallets.”
330. In addition, in its announcement of the Flow blockchain in or around

COMPLAINT
63

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

September 2019, Dapper Labs highlighted its involvement with other successful
crypto projects and funding support it had received from various investors.  And, at a
2022 town hall, Dapper Labs and the Flow development team explained planned
development activities for 2023, including continued development to support the
consumer-scale adoption of blockchain technology.
331. Further, the Flow website describes the FLOW token as a “low-
inflation” asset—meaning that the only new tokens that would purportedly be issued
would be distributed to stakers of the token so that FLOW investors’ holdings would
not be diluted.
332. Public statements made by Kraken to investors about FLOW and the
Flow protocol reinforced investors’ reasonable expectation of profits from an
investment in FLOW due to the managerial efforts of Dapper Labs and the Flow
development team.
333. For example, on its website, Kraken describes FLOW’s history, team,
and development.  Specifically, Kraken’s website states that “[w]ith Flow, the
team...is seeking to create a new platform that allows these types of applications to
attract a larger number of mainstream users.  For more regular updates from the Flow
team, you can bookmark the Flow blog, which includes tips and tutorials on the
network and its evolving technology.”
334. Kraken’s website also provides investors with analysis about the price of
FLOW.  Further, Kraken’s website states that, “[i]nvestors may also seek to add
FLOW to their portfolio should they believe in the future of blockchain platforms
focused on game development and collectables.”
6. ICP
335. “ICP,” previously called “DNF” and rebranded as ICP in 2021, is the
native token of the “Internet Computer Protocol,” a blockchain-based protocol,
conceived in 2016 by Swiss not-for-profit DFINITY Foundation (“DFINITY”),
which has offices in Palo Alto and San Francisco.

COMPLAINT
64

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

336. DFINITY describes the Internet Computer Protocol as a set of protocols
that allow independent data centers around the world to band together and offer a
decentralized alternative to the current centralized internet cloud providers and ICP as
the token designed to interact with these systems, including to provide for processing
power, data storage, and network bandwidth.
337. In an April 8, 2017, Medium post, DFINITY’s founder, Dominic
Williams, referred to the Internet Computer Protocol as an “intelligent decentralized
cloud.”  At a 2020 Blockchain conference, he further touted the protocol as a more
efficient replacement for big tech cloud services, servers, databases, firewalls, VPNs,
and other services.
338. Between 2017 and 2018, DFINITY engaged in three funding rounds: (1)
a “Seed” round in 2017; (2) a “Strategic” round in early 2018; and (3) a “Presale”
round in late 2018.  In these rounds, DFINITY raised the equivalent of approximately
$170 million by selling rights to receive future ICP tokens, which did not yet exist.
339. According to a post released by DFINITY on its website on or about
May 10, 2021, when the network launched, the rights to “access” the ICP received in
the seed round funds were staggered from 0 to 90-plus days.  On or about November
19, 2022, Williams tweeted that purchasers in the initial Seed fundraiser “made out
like bandits” when they purchased ICP for $0.03.
340. ICP tokens first became available on multiple crypto asset trading
platforms on or about May 10, 2021, when the network launched.  At launch,
DFINITY minted a total of 469 million ICP tokens.
341. From the time of its offering and continuing through the Relevant
Period, ICP was offered and sold as an investment contract and therefore a security.
342. The price of all ICP tokens goes up or down together.
343. Since approximately March 2022, ICP has been available for buying,
selling, and trading on the Kraken Trading Platform and through the Kraken Services.
344. The information publicly disseminated by DFINITY and its founder

COMPLAINT
65

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

would lead a reasonable investor, including those who purchased ICP since March
2022, to view ICP as an investment.  Specifically, ICP holders would reasonably
expect to profit from the efforts of these entities to grow the Internet Computer
Protocol because this growth would in turn increase the demand for and the value of
ICP.
345. For example, DFINITY stated publicly that it would use the proceeds
from ICP sales to fund development, marketing, business operations, and growth and
promotion of the Internet Computer Protocol, and thus demand for its ICP token.  In
fact, DFINITY distributed approximately 24% of the ICP tokens issued in the public
launch to support the Internet Computer platform and to pay staking rewards through
the Internet Computer ecosystem.  Another 18% of ICP tokens were distributed to
compensate the DFINITY team members, aligning their financial fortunes with those
of ICP investors.
346. Moreover, in an April 4, 2018 Medium post leading up to the 2018
funding rounds, Williams touted: “DFINITY has received inbound interest from
hundreds of private accredited entities such as hedge funds.”  Indeed, a number of
venture capital firms invested in ICP.
347. Furthermore, from ICP’s inception through today, DFINITY has
publicly stated that its key developers, including Williams, have been and continue to
be heavily involved in Internet Computer Protocol and have promoted their
dedication to grow the network and increase the value of ICP.
348. For example:
• On June 27, 2020 Williams tweeted: “[t]he Internet Computer proj is
propelled by extraordinary investments in R&D. DFINITY has
assembled one of the strongest science & engineering teams in tech,
across several research centers worldwide. This team has been
relentlessly pushing blockchain ambition to new levels.”
• On December 19, 2021, Williams tweeted: “[t]here’s nothing we can do

COMPLAINT
66

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

to control the price, but we feel the pain same as everyone else. There
has been a lot of market manipulation by bad people but we remain
focused on taking #ICP to the #1 spot.”
• On January 25, 2023, Williams tweeted: “[w]hen I look at [crypto asset
pricing services], I don’t look at the $ price, I look position. $ICP needs
to be in the top 3, and I will work tirelessly to help get it there.”
349. A month after it was launched for public trading, ICP’s price reached an
intraday high of $700.  One month later, the price of ICP had plummeted to $72 and
Williams began making public statements indicating the price of ICP would increase
again.  For example, on June 10, 2021, Williams tweeted, “Major [venture capital]
firms ... hv [sic] long-term strategies & generally don’t panic dump.  Their focus is
on moonshots because that’s what generates their primary returns.  We all need to
keep our focus on horizon.  Watch what happens in +6/9 months.”  And, on
September 3, 2021, Williams tweeted, “ICP seed investors’ 2000X gains; crypto’s
largest research org; most advanced blockchain; ferocious growth.”
350. In an ICP whitepaper released in January 2022, DFINITY promotes that
it burns ICP tokens as a mechanism to support the price of ICP by reducing their total
supply.  On January 20, 2023, Williams tweeted, “$ICP will eventually become
deflationary”—meaning its supply will be reduced over time.  On its website,
DFINITY posts a Dashboard that calculates the ongoing cycle burn rate, reflecting
the number of ICP tokens burned.  As with other crypto asset securities set forth
herein, this marketed burning of ICP as part of the system’s “deflationary”
mechanism has led investors reasonably to view their purchase of ICP as having the
potential for profit by limiting the supply of tokens available.
351. Public statements made by Kraken about ICP and the Internet Computer
Protocol reinforced investors’ reasonable expectation of profits from an investment in
ICP due to the managerial efforts of DFINITY.
352. For example, on its website, Kraken describes for investors DFINITY’s

COMPLAINT
67

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

history, team, and the development of the Internet Computer Protocol.  Further,
Kraken provides investors with analysis about the price of ICP.  Specifically,
Kraken’s website states: “Investors may find Internet Computer attractive based on
its goal of creating a blockchain platform for faster transaction settlement time and
with theoretically infinite capacity.”    Kraken website further states: “ICP’s goal of
building a modern internet with the ability to host any scale of application, from DeFi
and smart contract applications to tokenized internet services and websites, may also
be of interest to those who want to add ICP to their portfolio.”
7. MANA
353. “MANA” is the digital token minted by Decentraland.  Decentraland is a
virtual reality platform that began development in June 2015 but was not made
available to the public until its launch in February 2020.  Decentraland was launched
through an entity named Metaverse Holdings by a team of core individual developers:
Ariel Meilich, Esteban Ordano, Manual Araoz, and Yemel Jardi.  Decentraland
operates on the Ethereum blockchain.  According to Decentraland’s website,
www.decentraland.org, Decentraland is a three-dimensional virtual reality platform,
where users can create, experience, and monetize their content and applications.
354. According to Decentraland’s website, MANA serves as the crypto asset
involved in all transactions in the Decentraland virtual reality ecosystem.  On August
18, 2017, Decentraland held an initial coin offering in which MANA tokens were
exchanged for ETH tokens, raising approximately $24.1 million.  Currently, there is a
total supply of approximately 2.19 billion MANA tokens.
355. Decentraland offered early contributors to the Decentraland ecosystem a
discounted price when purchasing MANA.
356. From the time of its offering and continuing through the Relevant
Period, MANA was offered and sold as an investment contract and therefore a
security.
357. The price of all MANA tokens goes up or down together.

COMPLAINT
68

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

358. MANA has been available for buying, selling, and trading on the Kraken
Trading Platform and through the Kraken Services since December 2020.
359. The information Decentraland publicly disseminated would lead a
reasonable investor, including those who have purchased MANA since August 2020,
to view MANA as an investment.  Specifically, MANA holders would reasonably
expect to profit from Decentraland’s efforts to grow the Decentraland protocol
because this growth would in turn increase the demand for and value of MANA.
360. Investor proceeds raised during the MANA ICO were pooled to fund the
marketing, business expenses, and completion of the Decentraland platform.  For
instance, on July 5, 2017—a few weeks before the MANA ICO—Jardi published a
blog post detailing Decentraland’s intended use of revenue from the token sale as
follows:

361. The blog post further explained that the “top priority” for use of the
revenue was to develop a virtual world and that even after Decentraland was created,
“the development budget will focus on the continued improvement of the end-user
experience within the world.”
362. Indeed, Meilich explained in a separate blog post that after the ICO,
Decentraland would implement a “Continuous Token Model,” where it would
increase the MANA supply by 8 percent in the first year, followed by a lower rate in
subsequent years, to allow Decentraland to “regularly expand while accommodating

COMPLAINT
69

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

new users ... The proceeds of the tokens sold by [the Continuous Token Model] will
finance Decentraland over the long haul, perpetually aligning it with the prosperity of
the network.”
363. In April 2020, the Decentraland Team announced the creation of the
Decentraland Foundation (the “Foundation”), which today holds the intellectual
property rights over and makes available the products and services, including virtual
environment and tools, offered on the Decentraland platform.  Meilich publicly stated
that the distribution of the initial supply of MANA tokens issued at the time of the
ICO would be as follows: 20 percent to the founding team, advisors, and early
contributors; 20 percent to the Foundation; 40 percent to be available for purchase by
the public; and 20 percent reserved to “incentivize early users, developers, and
partners who want to build within Decentraland.”
364. As Meilich explained in his public blog post, “To incentivize value
creation within Decentraland, extra tokens will be allocated to the [development
team], organization, and a reserve to accelerate Community and Partner engagement.”
365. For example, Decentraland publicly issued a whitepaper (“Decentraland
Whitepaper”) describing the architecture that would be built in the virtual reality
platform and steps that would be taken to support Decentraland’s growth.  It further
made clear that the development of the platform was only beginning, and listed a
number of “Challenges” that would need to be addressed in the development process
in order for the platform to succeed.
366. Decentraland has continued to invest efforts in new developments and
tools for the platform.  According to Melich, even after the ICO, Decentraland was
still “preparing a land allocation policy to ensure fair distribution, as well as a method
for groups to purchase larger contiguous plots of land.”  Since the ICO, Decentraland
has developed tools for purported use on its platform (e.g., the “Marketplace” and
“Builder” tools).  In a public blog post published on March 19, 2018, the
Decentraland team described the marketplace tool as the “first ... in what will be a

COMPLAINT
70

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

series of tools.”
367. Additionally, the Decentraland Whitepaper explained how the
Foundation would “Foster the Network” in that it will “hold contests to create art,
games, applications, and experiences, with prizes contingent on meeting a set of
milestones.  At the same time, new users will be assigned allowances, allowing them
to participate in the economy immediately.”  The Decentraland Whitepaper further
claimed, “These financial incentives will help bootstrap the utility value of the
network until it independently attracts users and developers.”
368. The Decentraland Whitepaper and website have also marketed that the
protocol “burns” (or destroys) MANA tokens when used within the Decentraland
ecosystem.
369. Public statements made by Kraken about MANA and the Decentraland
Foundation reinforced investors’ reasonable expectation of profits from an
investment in MANA due to the managerial efforts of Decentraland.
370. For example, on its website, Kraken describes for investors MANA’s
history, team, and development.  Further, Kraken provides investors with analysis
about the price of MANA.  Specifically, Kraken’s website states: “When LAND is
auctioned, the MANA tokens used to purchase the parcels are burned, or removed
from circulation, making the supply of MANA deflationary.  This could put pressure
on the token value as the platform grows with new users.”  “Investors may seek to
add MANA to their portfolio should they believe in the future of virtual reality and its
ability to connect users all over the world.”
8. MATIC
371. “MATIC” is the native token of the Polygon blockchain.  Polygon,
originally called the Matic Network and rebranded as Polygon in 2021, is a
blockchain platform created in 2017 in Mumbai, India by, among others, Jaynti
Kanani, Sandeep Nailwal, and Anurag Arjun.  Since its creation, Polygon’s founders
have remained actively involved with Polygon through “Polygon Labs” (“Polygon”),

COMPLAINT
71

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

an entity they also founded for “the development and growth of Polygon.”
372. According to the Polygon website, https://polygon.technology/, the
Polygon network is an Ethereum scaling platform that enables developers to build
scalable user-friendly dApps with low transaction fees, purportedly by hosting
“sidechains” that run alongside the Ethereum blockchain, and allows users to process
transactions and initiate the transfer of assets and technology development on
Polygon’s supposedly less congested sidechain network.
373. Polygon issued a fixed supply of 10 billion MATIC tokens. MATIC
holders can earn additional MATIC for staking their MATIC on the Polygon platform
and becoming a validator, from delegating their MATIC to other validators in return
for a portion of the fees collected from validating transactions, or from staking their
MATIC with other third parties, such as crypto asset platforms that offer staking
services.
374. According to the initial whitepaper for MATIC, “Matic Tokens [we]re
expected to provide the economic incentives ... of the Matic Network [now Polygon]
... [W]ithout the Matic Token, there would be no incentive for users to expend
resources to participate in activities or provide services for the benefit of the entire
ecosystem on the Matic Network.”
375. In or around 2018, Polygon sold approximately 4 percent of the total
supply of MATIC in two early rounds of sales raising $165,000 at a price of
$0.00079 USD per 1 MATIC and $450,000 at a price of $0.00263 USD per 1
MATIC.  In April 2019, Polygon sold another 19% of the total supply of MATIC to
the public through a so-called “initial exchange offering” (or “IEO”—essentially, an
initial offer and sale of a crypto asset security on a crypto trading platform) on the
Binance.com crypto asset trading platform at a price of $0.00263 USD per 1 MATIC,
raising an additional $5 million to fund development of the network.
376. From the time of its offering and continuing through the Relevant
Period, MATIC was offered and sold as an investment contract and therefore a

COMPLAINT
72

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

security.
377. The price of all MATIC tokens goes up or down together.
378. MATIC has been available for buying, selling, and trading on the
Kraken Trading Platform and through the Kraken Services since May 2021.
379. The information Polygon publicly disseminated would lead a reasonable
investor, including those who purchased MATIC since May 2021, to view MATIC as
an investment.  Specifically, MATIC holders would reasonably expect to profit from
Polygon’s efforts to grow the Polygon protocol because this growth would in turn
increase the demand for and the value of MATIC.
380. For example, Polygon stated publicly, including in the whitepaper, that it
would pool investment proceeds through its private and public fundraising to develop
and grow its business.
381. Following the IEO, moreover, Polygon engaged in additional MATIC
sales, stating publicly that it was doing so in order to raise the funds needed to
support the growth of its network.  On February 7, 2022, Polygon reported on its blog
that it raised about $450 million through a purportedly private sale of its native
MATIC token in a funding round to several prominent venture capital firms.  Polygon
reported, “[w]ith this warchest, the core team can secure Polygon’s lead in paving the
way for mass adoption of Web3 applications, a race that we believe will result in
Ethereum prevailing over alternative blockchains.”
382. Polygon has also reported fundraising from other marquee and celebrity
investors.
383. Polygon also stated that it would reserve roughly 67% of MATIC to
support the Polygon ecosystem, the Foundation, and network operations. Another
20% of MATIC was further reserved to compensate the Polygon team members and
advisors, aligning their fortunes with investors’ with respect to MATIC.
384. In addition, the Polygon blog provides frequent updates on network
growth and developments at Polygon, including weekly statistics on active wallets

COMPLAINT
73

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

and transactions per day, as well as financial metrics such as revenue per day and
total network revenue.
385. Polygon has also routinely announced when crypto asset trading
platforms have made MATIC available for trading, such as the Kraken Trading
Platform and through the Kraken Services in or around May 2021.
386. Polygon has explicitly encouraged MATIC purchasers to view MATIC
as an investment in other ways.  For example, in a February 5, 2021 tweet, 14 months
after MATIC’s single biggest price drop, Nailwal compared the token to a prize
fighter that came back from defeat to become a champion:

387. Also, on November 3, 2022, Nailwal stated on Twitter: “I will not rest
till @0xPolygon gets its well-deserved ‘Top 3’ spot alongside BTC & ETH. No other
project comes even close.”  In a May 24, 2022 “Fireside Chat” with CNBC posted on
YouTube, Bejelic described part of “what’s different about Polygon” as: “[w]e are as
a team very, very committed, we have a very hands on approach with all the projects
out there, we are working around the clock on adoption and that is why we are
currently the most adopted scaling infrastructure platform.”  Currently, the founders
of Polygon continue to promote the platform through various social media.  For
example, on February 21, 2023, Nailwal tweeted, and Kanani retweeted, “Polygon
has grown exponentially.  To continue on this path of stupendous growth we have
crystallized our strategy for the next 5 yrs to drive mass adoption of web3 by scaling
Ethereum.  Our treasury remains healthy with a balance of over $250 million and
over 1.9 billion MATIC.”

COMPLAINT
74

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

388. Since January 2022, Polygon has also marketed that it “burns” MATIC
tokens accumulated as fees, indicating that the total supply of MATIC would
decrease.  For example, in January 2022, Polygon emphatically announced a protocol
upgrade that enabled burning in a blog post titled, “Burn, MATIC, Burn!”  As
Polygon explained in another blog post on its website around the same time,
“Polygon’s MATIC has a fixed supply of 10 billion, so any reduction in the number
of available tokens will have a deflationary effect.”  As of March 28, 2023, Polygon
had burned approximately 9.6 million MATIC tokens. This marketed burning of
MATIC as part of the Polygon’s network’s “deflationary effect” has led investors
reasonably to view their purchase of MATIC as having the potential for profit to the
extent there is a built-in mechanism to decrease the supply and therefore increase the
price of MATIC.
389. Public statements made by Kraken about MATIC and the Polygon
Network reinforced investors’ reasonable expectation of profits from an investment in
MATIC due to the managerial efforts of Polygon.
390. For example, on its website, Kraken provides investors with analysis
about the price of MATIC.  Specifically, Kraken website states:
“The crypto price of MATIC is subject to various factors. These include
market demand and supply, cryptocurrency news, bull and bear markets,
technological advancements, and adoption of the Polygon network . . .
Positive news, such as new partnerships or regulatory developments, could
lead to an increase in demand and, consequently, the price of MATIC.
Technological advancements within the Polygon network could also affect
the MATIC coin price, as a more efficient network could attract more
users...these improvements could result in increased demand and trading
volume.”
9. NEAR
391. “NEAR” is the native token of the NEAR blockchain protocol, a proof-
of-stake blockchain conceived in 2018 by Delaware corporation Near, Inc. (“Near”)
and its founders Alexander Skidanov and Illia Polosukhin.  According to the NEAR
whitepaper, the NEAR protocol uses a technology dubbed “Nightshade” that allows
the volume of transactions on the network to grow indefinitely without hurting its

COMPLAINT
75

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

performance, measured in speed and transaction fees.
392. In 2019, Skidanov and Polosukhin founded the NEAR Foundation, a
non-profit organization under Swiss law that claims to be “responsible for contracting
protocol maintainers, funding ecosystem development, and shepherding core
governance of the NEAR protocol.”
393. From Q3 2017 to Q1 2020, Near raised approximately $34.1 million
through the offer and sale of notes that were convertible into then-nonexistent NEAR
tokens.  In July 2019, Near filed forms with the SEC claiming its offer and sales of
convertible notes was exempt from registration and stating that Near “intended to use
the proceeds [of the sales] for the development of the Near protocol.”  In August
2020, Near held an additional sale of approximately 120 million NEAR tokens.  In
January 2022, the NEAR Foundation raised an additional $150 million through a
purportedly “private” sale of NEAR tokens to venture capital investors.
394. From the time of its offering and continuing through the Relevant
Period, NEAR was offered and sold as an investment contract and therefore a
security.
395. The price of all NEAR tokens goes up or down together.
396. Although U.S. investors purportedly were prohibited from participating
in the early seed funding rounds or NEAR’s initial minting, NEAR has been available
for purchase and sale in the United States since at least October 2020, including since
June 2022 on the Kraken Trading Platform and through the Kraken Services.
397.  The information publicly disseminated by Near, the NEAR Foundation,
and their common founders would lead a reasonable investor, including those who
purchased NEAR since June 2022, to view NEAR as an investment.  Specifically,
NEAR holders would reasonably expect to profit from the efforts of these groups to
grow the protocol because this growth would in turn increase the demand for and the
value of NEAR.
398. Approximately 35.7% of the one billion NEAR tokens initially minted

COMPLAINT
76

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

were transferred to early investors that held convertible notes.  Of the remaining
initial supply of NEAR tokens, 14% were allocated to the “Core Contributors,”
11.7% to “Early Ecosystem” developers, 10.0% to the NEAR “Foundation
Endowment,” 17.2% to “Community Grants and Programs,” and 11.4% to
“Operations Grants.”  Accordingly, the financial incentives and fortunes of Near’s
core team members and those of early developers (who collectively owned
approximately 25.7% of the initial supply of NEAR) were aligned with those of other
NEAR investors (who owned approximately 35.7% of the initial NEAR supply).
399. For example, Near stated in its SEC filings that it would pool investment
proceeds from the sale of notes convertible into NEAR tokens to develop the NEAR
protocol and grow Near’s business and, as recently as January of 2022, that it further
pooled proceeds from the sale of $150,000 in NEAR tokens that month for the same
purposes.
400. And, as the NEAR Foundation publicly touted, it did in fact use its
allocation of NEAR tokens to support the development of the NEAR protocol and
ecosystem.  For example, in October 2021, the NEAR Foundation announced “$800
million in funding initiatives targeted at accelerating growth” of the NEAR
ecosystem.  Subsequently, in a “transparency report” blog post on the Near website,
the NEAR Foundation stated that it had “deployed $540M in fiat and tokens during
[the last quarter of 2021 and the first two quarters of 2022]” to support “NEAR
ecosystem projects” and launch “regional hubs” around the world, among other
efforts to help grow the ecosystem.
401. NEAR’s founders remain actively involved with the NEAR protocol
today through the NEAR Foundation.  In fact, Polosukhin sat on the NEAR
Foundation Council (its governing group) until March 2023 and has served as its
Chair for the past two years.
402. In a post on one of the NEAR Foundation’s blogs discussing the role of
the NEAR ecosystem in funding projects to continue growing the NEAR protocol,

COMPLAINT
77

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Polosukhin likened the NEAR ecosystem to a venture capitalist picking an
investment strategy and likened the NEAR community to investors in the NEAR
ecosystem:

403. Similarly, as an indicator of investor demand, Near has touted its high-
profile venture capital partners.  For example, until March 2023, Near’s website
stated that NEAR is “[b]acked by the best,” followed by the logos of 10 venture
capital firms and the following quotation from one of those firms’ partners: “NEAR
is poised to be a leading smart contract blockchain platform, combining first-rate
technology with a fast-growing developer ecosystem.  We are excited to support
NEAR as we ramp up our investments in the digital asset space.”
404. Near has also marketed the feature of the NEAR protocol that
automatically burns 70% of all NEAR tokens accumulated as fees.  Accordingly, the
greater the number of transactions that occur on the NEAR protocol, the greater the
number of NEAR tokens that are burned, reducing their total supply.  As with other
crypto asset securities set forth herein, marketing that NEAR tokens are being burned
is designed to lead holders of surviving NEAR tokens to expect the potential for
profit due to the reduction in their supply.
405. Public statements made by Kraken to investors about NEAR and the
NEAR Protocol reinforced the reasonable expectation of profits from an investment
in NEAR due to the managerial efforts of the NEAR Foundation.
406. For example, on its website, Kraken describes for investors NEAR’s
history, team, and development.  Further, Kraken provides investors with analysus
about the price of NEAR.  Specifically, Kraken’s website states: “NEAR Protocol

COMPLAINT
78

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

increases its token supply by 5% each year, with 90% of these newly released tokens
going to validators.  The remainder goes to the blockchain’s treasury to support
platform development.”  “Investors may wish to buy NEAR and add it to their
portfolio should they believe in the future of sharding as a way to scale blockchain
technology and wish to have a stake in the future development of the NEAR
ecosystem.”
10. OMG
407. The so-called OMG Network, previously known as OmiseGO, was
founded in 2017.  In or around December 2020, Genesis Block Ventures (“GBV”), a
Hong Kong-based venture capital firm, acquired the OMG Network.  In or around
February 2021, the OMG Network partnered with another entity to develop the so-
called Boba Network.  In or around August 2021, the OMG Network changed its
name to the “OMG Foundation” and the following year became the “BOBA
Foundation.”
408. The OMG token was issued by the OMG Network as a “proof-of-stake”
token on the OMG Network.  The OMG Network held an ICO on or about June 24,
2017, raising approximately $25 million through the sale of OMG tokens to the
public in exchange for ether.  The OMG Network issued a maximum supply of
approximately 140.2 million OMG tokens, and sold approximately 65.1% of this
supply to the public in the ICO.
409. Today, OMG tokens are available for buying, selling, and trading on
several crypto asset trading platforms in exchange for fiat currency (namely U.S.
Dollars) or certain crypto assets.  Kraken made OMG available for buying, selling,
and trading on the Kraken Trading Platform and through the Kraken Services in
October 2019, and it remains available.
410. From the time of its offering and continuing through the Relevant
Period, OMG was offered and sold as an investment contract and is  therefore a
security.

COMPLAINT
79

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

411. The price of all OMG tokens goes up or down together.
412. The OMG Network pools the proceeds from OMG token sales to fund
the development, marketing, business operations, and growth of the OMG Network,
as reflected in OMG’s “Crowdfunding Whitepaper,” which used the following chart
to explain how funds raised during the ICO would be used to develop the network:

413. Specifically, the OMG whitepaper explained that the “[m]ajority of the
funds raised will go towards the development of open source software.  Overall fund
usage will be split approximately 2:1 ratio between network and end-user application
development.”  The whitepaper also detailed how the “budget” would be used, which
included items such as “[c]onstruct and roll-out blockchain, including full node
client,” and “[c]onstruct and roll -out decentralized custody of funds.”
414. The stated distribution of the OMG tokens tied the fortunes of the OMG
token holders together and to the fortunes of the promoters.  For instance, the OMG
tokens were allocated as follows: 65.1% for purchase by the public; 20% for “future
costs and uses including use for network validation as part of the development and
execution of the project” as a “reserve”; 9.9% for OMG “team members and key
contributors who worked to develop the ideas, supporting structures and actual
implementation of the OmiseGO Project”; and 5% for an airdrop to ether token
holders to “encourage incentive alignment with the Ethereum mainnet.”  Even after
the ICO, and through changes in management, the promoters of OMG continued to

COMPLAINT
80

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

tout the connected fortunes of OMG token holders and the promoters.
415. The information publicly disseminated by OMG’s promoters would lead
a reasonable investor, including those who purchased OMG since October 2019, to
view OMG as an investment.  Specifically, OMG holders would reasonably expect to
profit from the promoters’ efforts to grow the OMG Network because this growth
would in turn increase the demand for and the value of OMG.
416.  For example, the whitepaper touted the experience of the parent holding
company (Omise Holdings Pts. Ltd.), the OMG Network team, and advisors that
would contribute to building a successful blockchain network—the usage of which
would derive value to the OMG token holders.  The whitepaper stated that “[o]ur
technical team is led by experienced professionals who have track records in high
growth technology startups” and that they had the “best setup to implement this
project” given the parent holding company’s “established track record in building a
fast-growing fintech startup in the payments and value-transfer landscape.”
417. Further, materials available at the time of the ICO indicated that the
development of the platform by the OMG Network team could lead to profits for
OMG token holders.  For instance, the whitepaper provided that “[a]t the OmiseGo
Network layer, token holders will be eligible to earn transaction fees for interchange
payments and decentralized exchange. Activity ‘on-chain’ will pay transaction fees to
token holders for validating the network.”
418. Moreover, the OmiseGo website at the time of the ICO indicated that
OMG token holders could anticipate receiving a share of the fee revenue generated
on the platform, and a document purporting to establish the terms under which users
purchased OMG during the ICO clarified that potential for profit was linked to efforts
of the OMG Network team (“[W]hile the individuals and entities . . . assigned to
[create the network] will make reasonable efforts to develop and complete OmiseGO,
it is possible that such development may fail and User’s OMG may become useless
and/or valueless due to technical, commercial, regulatory or any other reasons”).

COMPLAINT
81

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

419. Even after the OMG Network released a beta version of its platform in
mid-2020 (which did not exist at the time of the ICO), the OMG Network team
continued to emphasize their commitment to developing the network.  For instance,
in or around June 2020 (more than seven months years after OMG was listed on the
Kraken Trading Platform), the OMG Network team expressed an intended focus on
future marketing for the platform: “We’ve always followed the mantra that our work
will speak for itself in the market place and we’ve gone very light on the marketing—
focusing instead on top-notch engineering and solid business development.”  In or
around October 2020, the OMG Network’s CEO wrote that for the remainder of 2020
the OMG Network “team remains focused on onboarding our CeFi partners to build
out the Layer-2 value transfer use-case and improve the protocol and UX” and that
the “goal is to get OMG Network technology embedded into a network of merchants
and enterprises, so it becomes the go-to protocol for value transfer.”
420. Similarly, while the management of the OMG Network continued to
change hands, the new teams still stated publicly that they would focus on making
efforts to achieve growth for OMG.  For example, at the time of the acquisition by
GBV in or around December 2020, the OMG Network stated, “Today,
@genesisblockhk acquires OMG Network.  We’ll work together to grow our
ecosystem and accelerate the adoption of OMG Network as the value transfer layer
for #Ethereum!”  And in November 2021, the new team touted, “OMG was trading
around $3-4 when the current team took over. Fair to say quite a bit of value has been
created since then between OMG and BOBA.”
421. Upon acquisition of the OMG Network in December 2020, GBV
promised to continue to “promote the accelerated growth of OMG Network, and
further enhance the adoption of OMG blockchain in Asia and beyond.”
422. These statements led reasonable OMG investors to expect that the
demand for OMG would likely increase based on the OMG Network’s efforts to
increase demand for its technology, thereby potentially resulting in a price increase

COMPLAINT
82

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

for OMG.
423. Public statements made by Kraken about OMG and the OMG Network
reinforced investors’ reasonable expectation of profits from an investment in OMG
due to the managerial efforts of Omise and the OMG Network team.
424. For example, on its website, Kraken describes for investors OMG's
history, team, and development, noting the “OMG Network is developed by Omise
Go Pte Ltd., a subsidiary of Omise, a Thailand-based payments processor founded in
2013.  Previously known as Omisego, Omise rebranded to OMG Network on June
1st, 2020.”
425. Kraken further provides investors with analysis about the price of OMG.
Specifically, Kraken’s website states: “Should Omise bridge the gap between
centralized and decentralized financial networks with OMG Network, the OMG
cryptocurrency could be of interest to long-term traders as well.”
11. SOL
426. “SOL” is the native token of the Solana blockchain. The Solana
blockchain was created by Solana Labs, Inc. (“Solana Labs”), a Delaware corporation
headquartered in San Francisco that was founded in 2018 by Anatoly Yakovenko
(“Yakovenko”) and Raj Gokal (Solana Labs’ current CEO and COO, respectively).
According to Solana’s website, www.solana.com, the Solana blockchain is a network
upon which decentralized apps (“dApps”) can be built, and is comprised of a platform
that aims to improve blockchain scalability and achieve high transaction speeds by
using a combination of consensus mechanisms.
427. According to Solana’s website, SOL may be “staked” on the Solana
blockchain to earn rewards, and a certain infinitesimal amount of SOL must be
“burned” to propose a transaction on the Solana blockchain, a common function for
native tokens on blockchains that constitutes a method for cryptographically
distributed ledgers to avoid a potential bad actor from “spamming” a blockchain by
overwhelming it with an infinite number of proposed transactions.

COMPLAINT
83

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

428. Between May 2018 and early March 2020, Solana Labs filed with the
SEC multiple forms claiming that its offers and sales of securities—what Solana
described in those forms as the “sale and issuance of rights to receive Solana Labs,
Inc. tokens in the future via a [SAFT]”—were exempt from registration under Rule
506(c) of Regulation D under the Securities Act.  Through these offers and sales of
securities, Solana sold approximately 177 million SOL, raising over $23 million.
429. Later in March 2020, Solana Labs conducted additional SOL sales on
the CoinList trading platform (www.coinlist.co) in a “Dutch auction” (wherein
investors place bids and the entire offering occurs at the price with the highest
number of bidders).  During this offering, Solana Labs sold approximately 8 million
SOL, at an average price of $0.22 per SOL, raising approximately $1.76 million.  In
August 2021, Solana Labs completed another, purportedly private sale of SOL,
raising over $314 million from investors, each of whom paid for SOL with fiat
currency and was required to sign a purchase agreement.
430. Beginning in February 2020, Solana Labs took steps to make SOL
available for trading on crypto asset trading platforms.  For example, in a September
17, 2020, Twitter post, Solana Labs stated: “The Solana community in the United
States has been eagerly awaiting the chance to trade SOL on a U.S. exchange, and
now that day has come. SOL/USDT, SOL/USD, and SOL/BTC pairs are all open for
trading on @ftx_us.”  In another Twitter post later the same day, Solana Labs stated:
“@BinanceUS announces Support for SOL, making it the Second US Exchange to
list SOL within one day.”
431. From the time of its offering and continuing through the Relevant
Period, SOL was offered and sold as an investment contract and therefore a security.
432. The price of all SOL tokens goes up or down together.
433. SOL has been available for buying, selling, and trading on the Kraken
Trading Platform and through the Kraken Services since approximately June 2021.
434. The information Solana Labs publicly disseminated would lead a

COMPLAINT
84

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

reasonable investor, including those who purchased SOL since June 2021, to view
SOL as an investment.   Specifically, SOL holders would reasonably expect to profit
from Solana Labs’ efforts to grow the Solana protocol because this growth would in
turn increase the demand for and the value of SOL.
435. Solana Labs stated publicly that it would pool the proceeds from its
private and public SOL sales in omnibus crypto asset wallets that it controlled, and
that it would use those proceeds to fund the development, operations, and marketing
efforts with respect to the Solana blockchain in order to attract more users to that
blockchain (potentially increasing the demand for, and therefore the value of, SOL
itself, given the need for those who wish to interact with the Solana blockchain to
tender SOL).  For example, in connection with the 2021 private sale of SOL, Solana
Labs stated publicly that it would use investor funds to: (i) hire engineers and support
staff to help grow Solana’s developer ecosystem; (ii) “accelerate the deployment of
market-ready applications focused on onboarding the next billion users into crypto”;
(iii) “launch an incubation studio to accelerate the development of decentralized
applications and Platforms building on Solana”; and (iv) develop a “venture investing
arm” and “trading desk dedicated to the Solana ecosystem.”
436. As Solana Labs stated publicly, of the 500 million SOL tokens initially
minted, 12.5% were allocated to Solana Labs’ founders, including Yakovenko and
Gokal, and another 12.5% were allocated to the Solana Foundation, a non-profit
organization headquartered in Zug, Switzerland “dedicated to the decentralization,
growth, and security of the Solana network.”  In fact, on April 8, 2020, Solana Labs
transferred 167 million SOL tokens to the Solana Foundation, and in its public
announcement of the Solana Foundation’s formation, Solana Labs stated that “[t]he
Foundation’s initial focus is expanding and developing the ecosystem of the Solana
protocol.”
437. Solana Labs’ two original founders have worked for the Solana
Foundation. Gokal currently serves as a member of the Solana Foundation Council.

COMPLAINT
85

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

And Yakovenko was a member and President of the Solana Foundation Council from
its founding until December 2021, when he stepped down to focus on his work at
Solana Labs.
438. In public statements on its website and social media pages, including
statements made and available during the period when SOL was available to trade on
the Kraken Trading Platform and through the Kraken Services, Solana specified its
expertise in developing blockchain networks and described the efforts Solana and its
founders had made and would continue to make to develop the Solana blockchain
protocol and attract users to the technology, which, again, required those utilizing the
technology to demand some amount of SOL.
439. Solana Labs undertook other promotional efforts to increase
participation in its network and thus demand for SOL, including with: (a) a Solana
podcast of which there have been at least 90 episodes since July 2019, with
interviews of key Solana Labs management and other key personnel, including
Yakovenko; (b) a YouTube channel with over 37,000 subscribers; and (c) dedicated
Telegram, Twitter, Reddit, Solana Forums, Discord, GitHub, Meetup, and Weibo
channels, with links to each available on Solana’s website.
440. These promotional statements that Solana Labs made in these fora with
respect to SOL and Solana Labs’ efforts to increase demand and value for SOL
included, for example:
• A July 28, 2019 post on Solana Labs’ Medium blog in which Yakovenko
stated that “Solana ... supports upwards of 50,000 TPS” (transactions
per second) “making it the most performant blockchain and the world’s
first web-scale decentralized network” and that the “Solana team—
comprised of pioneering technologists from [several high-profile
technology companies]—has focused on building the tech required for
Solana to function with these groundbreaking performance standards”;
• Solana’s website statement that “Solana is engineered for widespread,

COMPLAINT
86

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

mainstream use by being energy efficient, lightning fast, and extremely
inexpensive” and that “[m]any of the core Solana builders, like co-
founder Anatoly Yakovenko, have a background in building cell phone
networks,” which “means that they are singularly focused on building
for scalability (the ability to grow) and efficiency (the ability to get the
most information across with the least amount of resources)”;
• An April 14, 2021 post on gemini.com in which Yakovenko touted the
Solana network’s ability to “support a theoretical peak capacity of
65,000 transactions per second, currently” (“around 10,000 times faster
than Bitcoin, 4,000 times faster than Ethereum, and 35 times faster than
Ripple—even around 2.5 times faster than Visa”) and projecting that
such speed would “doubl[e] in capacity every two years with
improvements in hardware and bandwidth”; and
• A December 23, 2022 post on Solana’s website marketing various
“upgrades” that Solana and its engineers would undertake, including
“turbine optimizations” introduced by the “core engineering team,”
which Yakovenko described as the “coolest piece of technology that we
built that nobody knows about.”
441. Further, Solana Labs markets that it “burns” (or destroys) SOL tokens as
part of a “deflationary model.”  As Yakovenko explained in an April 14, 2021 article
entitled “Solana (SOL): Scaling Crypto to the Masses” posted on gemini.com,
“Solana transaction fees are paid in SOL and burnt (or permanently destroyed) as a
deflationary mechanism to reduce the total supply and thereby maintain a healthy
SOL price.”  As explained on the Solana website, since the Solana network was
launched, the “Total Current Supply” of SOL “has been reduced by the burning of
transaction fees and a planned token reduction event.”  This marketed burning of
SOL as part of the Solana network’s “deflationary mechanism” has led investors
reasonably to view their purchase of SOL as having the potential for profit to the

COMPLAINT
87

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

extent there is a built-in mechanism to decrease the supply and therefore increase the
price of SOL.
442. Public statements made by Kraken about SOL and the Solana Protocol
reinforced investors’ reasonable expectation of profits from an investment in SOL
due to the managerial efforts of Solana Labs.
443. For example, on its website, Kraken describes for investors SOL’s
history, team, and development.  Further, Kraken provides investors with analysis
about the price of SOL.  Specifically, Kraken’s website states: “Solana’s
comparatively large market cap demonstrates the wider crypto community’s belief in
the future of the Solana ecosystem.”
444. Kraken went on to explain: “Crypto market participants that see a long-
term prospect in the Solana blockchain may choose to dollar cost average (DCA) in
SOL tokens.  For those not interested in timing the market or finding the perfect time
to buy, dollar cost averaging may be the most effective strategy for accumulating
SOL.”
445. Further, Kraken stated on its site: “By setting up a recurring buy of SOL,
you can accumulate SOL regularly over time.  Those that believe in the potential of
the Solana blockchain over the long term may choose to simply set up a recurring buy
of SOL tokens on a regular basis rather than making a large, one-time purchase of
SOL all at once.”
FIRST CLAIM FOR RELIEF
Violations of Exchange Act Section 5
(Payward and Payward Ventures)
446. The Commission realleges and incorporates by reference here the
allegations in paragraphs 1 through 445.
447. By engaging in the acts and conduct described in this Complaint,
Payward and Payward Ventures, directly or indirectly, made and continues to make
use of the mails and the means and instrumentalities of interstate commerce for the

COMPLAINT
88

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

purpose of using any facility of trading platforms that constitute exchanges within or
subject to the jurisdiction of the United States, in order to effect transactions in a
security, or to report any such transaction, without registering as national securities
exchange under Exchange Act Section 6 [15 U.S.C. § 78f], and without being
exempted from such registration.
448. By reason of the conduct described above, each of Payward and
Payward Ventures, directly or indirectly, violated, are violating, and, unless enjoined,
will continue to violate Exchange Act Section 5 [15 U.S.C. § 78e].
SECOND CLAIM FOR RELIEF
Violations of Exchange Act Section 15(a)
(Payward and Payward Ventures)
449. The Commission realleges and incorporates by reference here the
allegations in paragraphs 1 through 445.
450. By engaging in the acts and conduct described in this Complaint,
Payward and Payward Ventures, persons other than a natural person under the
Exchange Act, are each a broker and dealer and each made and continues to make use
of the mails and the means and instrumentalities of interstate commerce to effect
transactions in, or to induce or attempt to induce the purchase or sale of, securities,
without registering as a broker or dealer in accordance with Exchange Act Section 15
[15 U.S.C. § 78o], and without being exempted from such registration.
451. By reason of the conduct described above, each of Payward and
Payward Ventures, directly or indirectly, violated, is violating, and, unless enjoined,
will continue to violate Exchange Act Section 15(a) [15 U.S.C. § 78o(a)].
THIRD CLAIM FOR RELIEF
Violations of Exchange Act Section 17A
(Payward and Payward Ventures)
452. The Commission realleges and incorporates by reference here the
allegations in paragraphs 1 through 445.

COMPLAINT
89

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

453. By engaging in the acts and conduct described in this Complaint,
Payward and Payward Ventures, directly or indirectly, each made and continues to
make use of the mails and the means and instrumentalities of interstate commerce to
perform the functions of a clearing agency with respect to securities, without
registering in accordance to Section 17A(b) [15 U.S.C. § 78q-1(b)] of the Exchange
Act and without being exempted from registration.
454. By reason of the conduct described above, each of Payward and
Payward Ventures, directly or indirectly, violated, is violating, and, unless enjoined,
will continue to violate Exchange Act Section 17A [15 U.S.C. § 78q-1].

PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that Defendants committed the
alleged violations.
II.
Issue judgments, in forms consistent with Rule 65(d) of the Federal Rules of
Civil Procedure, permanently enjoining Defendants, and their officers, agents,
servants, employees,  and attorneys, and those persons in active concert or
participation with any of them, who receive actual notice of the judgment by personal
service or otherwise, and each of them, from violating, directly or indirectly, Sections
5, 15(a), or 17A of the Exchange Act [15 U.S.C. §§ 78e, 78o(a), 78q-1(b)].
III.
Prohibiting, pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. §
78u(d)(5)], Defendants and their officers, agents, servants, employees, and attorneys,
and those persons in active concert or participation with any of them, who receive
actual notice of the judgment by personal service or otherwise, and each of them,
from using means or instrumentalities of interstate commerce to: (i) act as an

COMPLAINT
90

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

unregistered exchange with respect to any securities, including any crypto asset
securities; (ii) act as unregistered broker or dealer with respect to any securities,
including any crypto asset securities;  or (iii) act as an unregistered clearing agency
with respect to any securities, including any crypto asset securities.
IV.
Order Defendants to disgorge all ill  -gotten gains, together with prejudgment
interest thereon.
V.
Order Defendants to pay civil penalties under Section 21(d)(3) of the Exchange
Act [15 U.S.C. § 78u(d)(3)].
VI.
Retain jurisdiction of this action in accordance with the principles of equity and
the Federal Rules of Civil Procedure in order to implement and carry out the terms of
all orders and decrees that may be entered, or to entertain any suitable application or
motion for additional relief within the jurisdiction of this Court.
VII.
Grant such other and further relief as this Court may determine to be just and
necessary.

Dated:  November 20, 2023

  /s/ Daniel Blau
Daniel Blau
Alec Johnson
Peter Moores
Elizabeth Goody
Attorneys for Plaintiff
Securities and Exchange Commission

COMPLAINT 1  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

DANIEL BLAU (Cal. Bar No. 305008) 
Email: [email protected] 
ALEC JOHNSON (Cal. Bar No. 270960) 
Email: [email protected] 
PETER MOORES (Mass. Bar No. 658033) 
Email: [email protected] 
ELIZABETH GOODY (N.Y. Bar No. 4687463) 
Email: [email protected] 
 
Attorneys for Plaintiff 
Securities and Exchange Commission 
 
David Hirsch, Chief (Crypto Assets and Cyber Unit) 
Jorge Tenreiro, Deputy Chief (Crypto Assets and Cyber Unit) 
100 F Street NE 
Washington, DC 20549 
 
Kathryn E. Zoladz, Acting Regional Director 
Douglas M. Miller, Regional Trial Counsel 
444 S. Flower Street, Suite 900 
Los Angeles, California 90071 
Telephone: (323) 965-3998 
Facsimile: (213) 443-1904 
 

UNITED STATES DISTRICT COURT 
NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

 

SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, 

vs. 

PAYWARD, INC. and PAYWARD 
VENTURES, INC.,  

Defendants. 

 Case No.   

COMPLAINT 

 

 
 

In support of its Complaint against Defendants Payward, Inc. (“Payward”) and 

Payward Ventures, Inc. (“Payward Ventures”), which collectively do business as 

“Kraken,” Plaintiff Securities and Exchange Commission (“SEC” or the 

“Commission”) alleges as follows:  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 1 of 90



  
 

COMPLAINT 2  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

I. SUMMARY 

1. Since 2013, Kraken has operated an online trading platform through 

which its customers can buy and sell crypto assets, many of which form the basis of 

investment contracts covered under U.S. securities laws.  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 doing so, Kraken 

has created risk for investors and taken in billions of dollars in fees and trading 

revenue from investors without adhering to or even recognizing the requirements of 

the U.S. securities laws that are designed to protect investors.   

2. Kraken’s business practices, deficient internal controls, and inadequate 

recordkeeping present a range of additional risks that would also be prohibited for 

any properly registered securities intermediary.  For example, Kraken has at times 

held customer crypto assets valued at more than $33 billion, but it has commingled 

these crypto assets with its own, creating what its independent auditor had identified 

in its audit plan as “a significant risk of loss” to its customers.  Similarly, Kraken has 

held at times more than $5 billion worth of its customers’ cash, and it also 

commingles some of its customers’ cash with some of its own.  In fact, Kraken has at 

times paid operational expenses directly from bank accounts that hold customer cash.  

In addition, during 2023, the independent auditor determined that issues related to 

Kraken’s recordkeeping for customer custodial assets had resulted in material errors 

to Kraken’s financial statements for 2020 and 2021.   

3. Congress enacted the Securities Exchange Act of 1934 (the “Exchange 

Act”) in part to provide for the regulation of the national securities markets.  

Congress charged the SEC with protecting investors, preserving fair and orderly 

markets, and facilitating capital formation.  The SEC carries out these statutorily 

mandated goals in part through a series of registration, disclosure, recordkeeping, 

inspection, and anti-conflict-of-interest regulations.  These regulations have generally 

led to the separation of key intermediaries in the securities markets⸺including the 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 2 of 90



  
 

COMPLAINT 3  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

separation of brokers and dealers from exchanges and clearing agencies⸺thereby 

protecting investors and their assets from the conflicts of interest and risks that can 

arise when these functions merge.  The SEC has also taken steps to protect investor 

assets when held by brokers or clearing agencies, including by issuing regulations 

that restrict the commingling of customer assets with those of the companies handling 

their investments. 

4. By operating a platform on which crypto assets are offered and sold as 

investment contracts, Kraken’s operations place it squarely within the purview of 

U.S. securities laws.  Over seventy years ago, the Supreme Court in SEC v. W.J. 

Howey Co., 328 U.S. 293 (1946), set forth the relevant test for determining whether 

an instrument is an investment contract subject to regulation under U.S. securities 

laws.  And in July 2017, the Commission issued a public report reminding members 

of the public that crypto assets may be considered investment contracts subject to 

securities laws if they satisfy Howey’s test.  The SEC has also enforced the relevant 

securities laws by bringing a range of enforcement actions based on the offer and sale 

of crypto assets as securities.  Nonetheless, Kraken has turned a blind eye to its legal 

responsibilities and engaged in its securities intermediary conduct without registering 

with the Commission, depriving investors of the disclosures and protections that 

registration entails. 

5.   In failing to prevent known conflicts of interest and commingling its 

investors’ assets with its own, Kraken demonstrates why registration and the investor 

protections that come with regulatory oversight are critical to the soundness of the 

United States capital markets.  Defendants have placed their own financial interests 

ahead of the legal obligations they owe to customers as securities intermediaries.  By 

engaging in the conduct set forth in this Complaint, Defendants have acted as an 

exchange, a broker, a dealer, and a clearing agency without registration in violation of 

Exchange Act Sections 5, 15(a), and 17A(b) [15 U.S.C. §§ 78e, 78o(a), and 78q-

1(b)].  Unless Defendants are permanently restrained and enjoined, they will continue 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 3 of 90



  
 

COMPLAINT 4  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

to violate these statutes.   

6. The Commission brings this action pursuant to the authority conferred 

upon it by Exchange Act Section 21(d) [15 U.S.C. § 78u(d)]. 

7. The Commission seeks a final judgment: (i) permanently enjoining 

Defendants from violating Sections 5, 15(a), and 17A of the Exchange Act [15 U.S.C. 

§§ 78e, 78o(a), and 78q-1(b)(1)]; (ii) ordering Defendants to disgorge their ill-gotten 

gains, on a joint and several basis, and to pay prejudgment interest thereon; (iii) 

permanently enjoining Defendants from acting as an unregistered exchange, broker, 

dealer, or clearing agency; and (iv) imposing civil money penalties on Defendants. 

II. JURISDICTION AND VENUE 

8. The Court has jurisdiction over this action pursuant to Section 21(d) of 

the Exchange Act, 15 U.S.C. § 78u(d). 

9. Defendants, directly or indirectly, have made use of the means or 

instrumentalities of interstate commerce, of the mails, or of the facilities of an 

exchange within or subject to the jurisdiction of the United States in connection with 

the transactions, acts, practices, and courses of business alleged in this Complaint.  

10. Venue is proper in this district pursuant to Section 27(a) of the Exchange 

Act, 15 U.S.C. § 78aa(a), because certain of the transactions, acts, practices, and 

courses of conduct constituting violations of the federal securities laws occurred 

within this district.  In addition, venue is proper because Defendants are 

headquartered in this district. 

III. DIVISIONAL ASSIGNMENT 

11. Under Civil Local Rule 3-2(d), this case should be assigned to the San 

Francisco Division or the Oakland Division because a substantial part of the events or 

omissions that give rise to the claims alleged herein occurred in San Francisco 

County. 

IV. DEFENDANTS 

12. Payward is a Delaware corporation founded in 2011, with an address in 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 4 of 90



  
 

COMPLAINT 5  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

San Francisco, CA.  Payward has a number of wholly owned subsidiaries 

headquartered throughout the world, including Payward Ventures, Inc.  Payward and 

most of its subsidiaries do business as Kraken.  Payward has never registered with the 

Commission in any capacity. 

13. Payward Ventures is a Delaware corporation founded in 2013, with an 

address in San Francisco, CA.  Payward Ventures has never registered with the 

Commission in any capacity.  On February 9, 2023, the SEC filed a settled action 

against Payward Ventures in connection with the unregistered offer and sale of 

Kraken’s staking-as-a-service program.  See SEC v. Payward Ventures, Inc., No. 

3:23-cv-588 (N.D. Cal.). 

V. BACKGROUND 

14. Kraken is subject to the laws and regulations governing the U.S. 

securities markets because many of the crypto assets bought and sold through its 

platform are offered, bought, and sold as investment contracts.  As discussed below, 

investment contracts are defined broadly under the law with a focus on an investor’s 

reasonable expectations in acquiring an asset, rather than the form of the transaction 

itself.  Moreover, Kraken has long been on notice that its role in the offer and sale of 

crypto assets as investment contracts made it subject to U.S. securities laws.   

A. Statutory and Legal Framework Regarding the Scope of U.S. 

Securities Regulations 

15. As the Supreme Court has recently reemphasized, the Exchange Act and 

the Securities Act of 1933 (“Securities Act”) “form the backbone of American 

securities laws.”  Slack Tech., LLC v. Pirani, 598 U.S. 759, 762 (2023).  Together, 

these acts provide for the regulation of various entities involved in the purchase and 

sale of securities and define “security” broadly to include a wide range of assets, 

including “investment contracts.”  Securities Act § 2(a)(1) [15 U.S.C. § 77b(a)(1)]; 

Exchange Act § 3(a)(10) [15 U.S.C. § 78c(a)(10)]. 

16. Investment contracts are instruments through which a person invests 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 5 of 90



  
 

COMPLAINT 6  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

money in a common enterprise and reasonably expects profits or returns derived from 

the entrepreneurial or managerial efforts of others.  As the United States Supreme 

Court noted in Howey, Congress defined “security” broadly to embody a “flexible 

rather than a static principle, one that is capable of adaptation to meet the countless 

and variable schemes devised by those who seek the use of the money of others on 

the promise of profits.”  328 U.S. at 299.  Following Congress’s intent, courts have 

found novel or unique investment vehicles to be investment contracts, including those 

involving orange groves, animal breeding programs, cattle embryos, mobile phones, 

enterprises that exist only on the internet, and crypto assets.   

17. To protect investors and fulfill the purposes of the Exchange Act, 

Congress imposed registration and disclosure obligations on certain defined 

participants in the national securities markets, including but not limited to broker-

dealers, exchanges, and clearing agencies.  The Exchange Act empowers the SEC to 

write rules to, among other things, protect investors who use the services of those 

participants and provide for stability of the nation’s securities markets. 

B. Crypto Assets and Crypto Trading Platforms 

1. Crypto Assets 

18. As used herein, the terms “crypto asset,” “digital asset,” or “token” 

generally refer to an asset issued and/or transferred using blockchain or distributed 

ledger technology, including assets referred to colloquially as “cryptocurrencies,” 

“virtual currencies,” and digital “coins.”   

19. A blockchain or distributed ledger is a database spread across a network 

of computers that records transactions in theoretically unchangeable, digitally 

recorded data packages, referred to as “blocks.”  These systems typically rely on 

cryptographic techniques to secure recording of transactions. 

20. Some crypto assets are “native” to a particular blockchain, meaning that 

they are the blockchain’s core asset that is integral to how the blockchain functions.  

In contrast, other crypto assets may be non-native and are built on top of an existing 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 6 of 90



  
 

COMPLAINT 7  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

blockchain. 

21. Some crypto assets may provide a holder with certain pre-determined 

rights, coded into the software itself, such as the right to “burn” (or destroy) the asset 

in order to propose transactions on the asset’s blockchain, or to interact with other 

portions of the blockchain’s existing or yet-to-be-developed protocols and software.  

22. Crypto asset owners typically store key information about their crypto 

assets on a piece of hardware or software called a “crypto wallet.”  The primary 

purpose of a crypto wallet is to store the “public key” and the “private key” 

associated with a crypto asset so that the user can make transactions on the associated 

blockchain.  The public key is colloquially known as the user’s blockchain “address” 

and can be freely shared with others.  The private key is analogous to a password and 

confers the ability to transfer a crypto asset.  Therefore, whoever controls the private 

key controls the crypto asset associated with that key.  Crypto wallets can reside on 

devices that are connected to the internet (sometimes called “hot wallets”), or on 

devices that are not connected to the internet (sometimes called “cold wallets” or 

“cold storage”).  Although, all wallets are at risk of being compromised or “hacked,” 

hot wallets are at greater risk because their internet connectivity makes them easier to 

access remotely. 

23. Crypto assets can be transferred directly on the relevant blockchain or 

through a third-party intermediary.  The transfer of a crypto asset from one person to 

another that is verified and recorded on the relevant blockchain’s publicly-available 

ledger is known as an “on-chain” transaction.  The reliability of on-chain crypto asset 

transfers is one of the core functionalities of blockchain technology, as described in 

Section B.2 below. 

24. Crypto asset transactions that occur without being submitted to, verified, 

or recorded on a blockchain are known as “off-chain” transactions.  For example, the 

transfer of crypto assets between two customers on the same centralized trading 

platform, such as Kraken’s, is an off-chain transaction.        

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 7 of 90



  
 

COMPLAINT 8  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

2. Consensus Mechanisms and Validation of Transactions on a 

Blockchain 

25. Blockchains typically employ a “consensus mechanism” that, among 

other things, aims to achieve agreement among users as to a data value or as to the 

state of the ledger. 

26. A consensus mechanism describes the particular protocol used by a 

blockchain to agree on, among other things, which ledger transactions are valid, when 

and how to update the blockchain, and whether to compensate certain participants for 

validating transactions and adding new blocks.  There can be multiple compensation 

sources for consensus mechanisms under the terms of the blockchain protocol, 

including from fees charged to those transacting on the blockchain, or through the 

creation or “mining” of additional amounts of the blockchain’s native crypto asset.   

27. “Proof of work” and “proof of stake” are two of the most prevalent 

consensus mechanisms used by blockchains.  Proof of work, the mechanism used by 

the Bitcoin blockchain, involves a network of computers, known as “miners,” 

expending computational effort to guess the value of a predetermined number.  The 

first miner to successfully guess this number earns the right to update the blockchain 

with a block of transactions and is rewarded with the blockchain’s native crypto asset.  

Proof of stake, the consensus mechanism currently used on the Ethereum blockchain, 

involves selecting “validators” from a network of crypto asset holders who have 

committed or “staked” a minimum number of crypto assets. 

3. The Offer and Sale of Crypto Assets 

28. Persons have offered and sold crypto assets in capital-raising events in 

exchange for consideration, including but not limited to through so-called “initial 

coin offerings” or “ICOs,” “crowdsales,” or public “token sales.”  In some instances, 

the entities offering or selling the crypto assets may release a “whitepaper” or other 

marketing materials describing a project to which the asset relates, the terms of the 

offering, and any rights associated with the asset.   

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 8 of 90



  
 

COMPLAINT 9  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

29. Some issuers continue to sell the crypto assets after the initial offer and 

sale, including directly or indirectly by selling them on crypto asset trading platforms. 

4. Crypto Asset Trading Platforms 

30. Crypto asset trading platforms—like Kraken’s—are marketplaces that 

offer a variety of services relating to crypto assets, often including brokerage, trading, 

custody, and settlement services.  

31. Crypto asset trading platform interfaces—like Kraken’s—also look 

similar to traditional custodial securities brokerage platforms.  Whether web-, 

desktop-, or mobile-based, application programming interfaces (APIs), or other 

software, these crypto asset trading platform interfaces typically emulate those 

offered within the traditional securities markets: they show order books of the various 

assets available to trade and historical trading information like high and low prices, 

trading volumes, and capitalizations which serve in part to help investors recognize 

market opportunities.  

32. Crypto asset trading platforms allow their customers to deposit fiat (legal 

tender issued by a country) into bank accounts and crypto assets into crypto wallets 

controlled by the platform, and then to purchase and sell crypto assets for fiat or other 

crypto assets.  These transactions can be finalized on-chain, with the intermediary 

transferring the purchased crypto asset from the seller’s account to the buyer’s crypto 

wallet.  Or, if the purchaser has an account with the intermediary and customer assets 

are stored collectively in what is called an omnibus wallet, then the transactions can 

be finalized off-chain, with the platform recording the necessary debits and credits 

internally, without having to transfer crypto assets from one blockchain address to 

another. 

33. By possessing and controlling the fiat and crypto assets deposited and/or 

traded by their customers, crypto asset trading platforms function as central 

depositories.     

34. However, unlike in traditional securities markets, crypto asset trading 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 9 of 90



  
 

COMPLAINT 10  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

platforms (including that of Kraken) perform various other functions, in that they also 

typically solicit, accept, and handle customer orders for securities; allow for the 

interaction and intermediation of multiple bids and offers resulting in purchases and 

sales; act as an intermediary in making payments or deliveries, or both; and maintain 

a central securities depository for the settlement of securities transactions. 

35. By contrast, a registered national securities exchange submits 

information regarding executed trades to a registered clearing agency that takes 

responsibility for ensuring settlement finality and safekeeping of the assets being 

traded and, in doing so, protects investors’ interests.  Thus, registered national 

securities exchanges typically do not assume possession or control of the underlying 

assets being traded.  Moreover, crypto asset trading platforms usually settle 

transactions by updating internal records with each investor’s positions, a function 

typically carried out by clearing agencies and broker-dealers in compliant securities 

markets.   

36. Likewise, crypto asset trading platforms typically perform roles 

traditionally assigned to broker-dealers in compliant securities markets, such as 

effecting securities transactions on behalf of their customers, without the platforms 

following or even acknowledging the legal obligations and restrictions on activities 

that accompany status as a broker-dealer. 

C. The SEC’s “DAO Report” 

37. On July 25, 2017, the SEC issued the Report of Investigation Pursuant to 

Section 21(a) of the Securities Exchange Act of 1934: The DAO (the “DAO 

Report”), advising “those who would use … distributed ledger or blockchain-enabled 

means for capital raising[] to take appropriate steps to ensure compliance with the 

U.S. federal securities laws,” and finding that the offering of crypto assets at issue in 

the DAO Report were offerings of securities. 

38. The DAO Report also advised that “any entity or person engaging in the 

activities of an exchange must register as a national securities exchange or operate 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 10 of 90



  
 

COMPLAINT 11  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

pursuant to an exemption from such registration,” and “stress[ed] the obligation to 

comply with the registration provisions of the federal securities laws with respect to 

products and platforms involving emerging technologies and new investor 

interfaces.”  The DAO Report also found that the trading platforms at issue there 

“provided users with an electronic system that matched orders from multiple parties 

to buy and sell [the crypto asset securities at issue] for execution based on non-

discretionary methods” and therefore “appear to have satisfied the criteria” for being 

an exchange under the Exchange Act.  

VI. FACTUAL ALLEGATIONS 

A. Kraken’s Operations 

39. In 2013, Kraken launched its “Kraken Trading Platform,” which allows 

customers to buy and sell crypto assets through an online market.  On its website, 

Kraken describes the Kraken Trading Platform as “one of the world’s largest digital 

asset exchanges” and advertises that it has more than nine million retail and 

institutional customers located in over 190 countries. 

40. With the launch of the Kraken Trading Platform, Kraken also began 

providing services for customers to open accounts, deposit funds, enter orders, and 

trade crypto assets (“Kraken Services”).   

41. Today, Kraken’s Trading Platform resembles those found in the 

traditional securities industry with a matching engine, customer interface 

applications, a range of order types, and advanced trading tools.  From its start in 

2013 to the present (the “Relevant Period”), the Kraken Trading Platform and Kraken 

Services have evolved into an expansive online trading operation that lists more than 

220 crypto assets and permits margin trading while offering securities trading 

services such as an over-the-counter trading desk (“OTC Desk”), “instant buy” 

features, and multiple applications and pathways for customers to interface with the 

Kraken Trading Platform and Kraken Services. 

42. Through the Kraken Trading Platform and Kraken Services, Kraken 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 11 of 90



  
 

COMPLAINT 12  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

facilitates transactions in crypto assets in multiple ways.  This includes: (1) allowing 

customers to submit orders for crypto assets and operating a system that attempts to 

match those orders; (2) opening and maintaining customer accounts and holding 

funds and crypto assets that have been transferred to or purchased through Kraken by 

customers; (3) operating “Instant Buy,” where Kraken acts as the counterparty for a 

customer’s request to buy or sell crypto assets; (4) operating the OTC Desk, which 

facilitates large crypto asset orders; (5) operating applications that allow customers to 

access their accounts and place and direct orders; and (6) offering margin lending for 

trading in crypto assets on the Kraken Trading Platform.   

43. In 2020 and 2021 together, Kraken earned more than $43 billion in 

revenue from trading-based transactions, including from fees charged to customers, 

sales of crypto assets to customers, and proprietary trading. 

44. The Kraken Trading Platform and Kraken Services are available to both 

retail and institutional customers, including to customers inside and outside the 

United States. 

45. The Kraken Trading Platform’s servers are located in the United States, 

and are the means through which the platform operates a single set of order books 

and a matching engine.  Kraken does not segregate or segment the order books based 

on geography or local operating entity.   

46. Payward utilizes a single set of Terms of Service to cover the Kraken 

Trading Platform and Kraken Services.  According to Kraken’s Terms of Service, the 

Kraken Trading Platform and Kraken Services are offered through “local operating 

entities,” which are wholly owned subsidiaries of Payward.  For customers residing in 

the United States, the local operating entity is Payward Ventures.   

47. Despite the geographic designations referenced in the Terms of Service, 

Payward’s operations are not geographically segregated, allowing U.S. customers to 

trade crypto assets regardless of where Kraken’s operations occur.  Personnel of 

various local operating entities are cross-staffed according to product or service (not 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 12 of 90



  
 

COMPLAINT 13  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

by region) and report to Payward executive management.  For example, personnel of 

the Kraken Trading Platform and OTC Desk ultimately report to Payward’s chief 

operating officer.  Payward’s current and former chief executive officers participated 

in promotional videos and media interviews promoting the Kraken Trading Platform.  

Moreover, Payward’s marketing materials to venture capital investors do not 

differentiate between Payward and these local operating entities.  

48. The crypto assets made available for trading on the Kraken Trading 

Platform and through the Kraken Services may be bought, sold, or exchanged for 

consideration, including U.S. dollars, other fiat currencies, or other crypto assets.  

49. Each unit of a particular crypto asset on the Kraken Trading Platform 

trades at the same price as another unit of that same crypto asset.  

50. These crypto assets are interchangeable (e.g., any “FIL” crypto asset or 

fraction thereof is just like any other FIL crypto asset) on the Kraken Trading 

Platform.  Accordingly, to the extent the assets change in price on the Kraken Trading 

Platform, all tokens of the same asset increase or decrease in price in the same 

amounts and to the same extent, such that one token is equal in value to any other one 

token, on a pro rata basis.   

51. However, investors may buy or sell crypto assets through the Kraken 

Services at prices different than the contemporaneous price on the Kraken Trading 

Platform.  For example, Kraken may sell to an investor a crypto asset through its 

Instant Buy feature at a different price then the last executed trade or current offer on 

the Kraken Trading Platform.   

52. Nevertheless, the purchase of any particular unit of a crypto asset does 

not appear to give an investor any special rights not available to any other investor in 

that crypto asset, such as separately managed accounts, or different capital 

appreciation as to the value of that crypto asset.  This includes assets purchased on 

the Kraken Trading Platform and assets purchased through the Instant Buy feature. 

53. The crypto assets on the Kraken Trading Platform are available for sale 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 13 of 90



  
 

COMPLAINT 14  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

broadly to any person who creates an account with Kraken.  Kraken applications 

display information (like asset price changes) in a format highly similar to trading 

applications offered by registered broker-dealers in the traditional securities markets.  

Kraken makes these crypto assets available for trading without restricting transactions 

to those who might acquire or treat the asset as something other than as an 

investment. 

54. Kraken customers can access asset-specific webpages from the “Crypto 

Prices” page on Kraken’s website.  There, customers can click on the name of a 

particular crypto asset and are redirected to a page where Kraken provides additional 

information about that crypto asset.  The information on each asset-specific page 

includes: (i) an “about” section describing the crypto asset; (ii) a “who created” 

section describing the team of people who created or launched the crypto asset and 

are developing the network for the crypto asset; (iii) a “how does it work” section that 

describes the protocol and blockchain for the crypto asset and any parameters or 

characteristics of the crypto asset; (iv) a roadmap section describing the anticipated 

development of the crypto network or project; (v) a section describing various 

analysts assessments about the future price of the crypto asset; (vi) historical 

information about the “price” of the asset including its “all-time high” price during 

the past year and the “price change” over the last 24 hours and the last year stated as a 

percentage return change; (vii) a link to another page about the crypto asset to “learn 

more about” it; (viii) links to purchase the crypto asset on the Kraken Trading 

Platform or through the Kraken Services and a description of the other crypto assets 

owned by owners of the particular crypto asset, and (ix) information specifically 

promoting a purchase of the asset as an investment into the asset’s promoter’s efforts 

to develop, create, grow, and/or maintain the asset's ecosystem in the hope that this 

will increase the asset’s value.   

55. Because Kraken has not registered as a broker, dealer, national securities 

exchange, or clearing agency, there is no formal mechanism to ensure the accuracy or 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 14 of 90



  
 

COMPLAINT 15  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

consistency of the information Kraken selectively discloses about the crypto assets it 

makes available for trading or about its own operations. 

56. Kraken does not restrict how many units of a crypto asset any given 

investor may purchase.  Moreover, investors are not required to purchase quantities 

tied to a purported non-investment “use” that may exist for the asset, if any.  To the 

contrary, investors may purchase crypto assets in any amount and for any purpose. 

57. The crypto assets made available for trading on the Kraken Trading 

Platform and through the Kraken Services are transferable and immediately eligible 

for resale on the Kraken Trading Platform and through the Kraken Services (both 

subject to settlement) without any apparent restrictions on resale (including as to the 

prices or amounts of resale, or the identity of the new buyers). 

B. Many of the Crypto Assets Available Through Kraken Are 

Securities 

58. Throughout the Relevant Period, Kraken has made available for trading 

many “crypto assets securities.”  These crypto asset securities are investment 

contracts represented by the underlying crypto asset.  In fact, Kraken currently makes 

available for trading crypto assets that have been the subject of prior SEC 

enforcement actions based upon their status as crypto asset securities, including 

crypto assets trading under the symbols ADA, AXS, ALGO, ATOM, CHZ, COTI, 

DASH, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, SAND, and SOL, which 

were alleged in one or more of the following actions against other unregistered 

intermediaries:  SEC v. Bittrex, No. 2:23-cv-580 (W.D. Wash. filed April 17, 2023); 

SEC v. Binance Holdings Ltd., Civ. No. 23-1599 (D.D.C. filed June 5, 2023); SEC v. 

Coinbase, Inc., No. 23-cv-4738 (S.D.N.Y. filed June 6, 2023). 

59. For purposes of prevailing on the Exchange Act claims set forth herein, 

the SEC need only establish that Kraken has engaged in regulated activities relating 

to a single crypto asset security during the Relevant Period.  Nevertheless, set forth 

herein are details regarding a non-exhaustive list of 11 crypto asset securities 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 15 of 90



  
 

COMPLAINT 16  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

available on the Kraken Trading Platform and through the Kraken Services under the 

following trading symbols: ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, 

MATIC, NEAR, OMG, and SOL (the “Kraken-Traded Securities”).   

60. Each of these Kraken-Traded Securities was offered and sold on the 

Kraken Trading Platform or through the Kraken Services during the Relevant Period.   

61. Each of the Kraken-Traded Securities was offered and sold as part of an 

investment contract.   

62. Based on the public statements of their respective issuers and 

promoters—at least some of which were rebroadcast by Kraken itself on the Kraken 

Trading Platform—a reasonable investor would have understood the offer and sale of 

each of the Kraken-Traded Securities as offers and sales of investment contracts.  

Specifically, purchasers of the Kraken-Traded Securities would reasonably have 

expected to profit from the efforts of these issuers and promoters to grow and 

maintain the technology platforms and blockchain ecosystems associated with these 

crypto assets because such growth or operations could in turn increase the price of the 

underlying crypto asset and/or provide increased value to holders of the Kraken-

Traded Securities.  

63. Further, the economic reality of the offerings as presented by their 

respective issuers and promoters—and rebroadcast by Kraken itself—would have 

indicated to a reasonable investor that future profits through the increased value of 

the Kraken-Traded Securities would come through the efforts of these issuers and 

promoters. 

64. In light of the ongoing statements and efforts of these issuers and 

promoters, such as those set forth below, this expectation would have persisted 

whether the investor acquired the Kraken-Traded Securities from the issuer or from 

other investors. 

65. For example, FIL is the native crypto token of the Filecoin network, a 

self-described open-source data storage network that runs on a blockchain created by 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 16 of 90



  
 

COMPLAINT 17  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

Protocol Labs, Inc.  Protocol Labs conducted initial sales of FIL in 2017, saying the 

sales “raised the funding necessary to grow our team, to create the network, and build 

all the software tools needed to operate and use the network.”  Underscoring the 

aligned financial incentives between the network and the FIL token, Protocol Labs 

publicly stated, “Filecoin success will reward the investment of supporters like you 

by simultaneously driving down the cost of storage and increasing the value of the 

Filecoin tokens that incentivize miners to provide storage.” 

66. FIL has been available for purchase and sale on the Kraken Trading 

Platform and through the Kraken Services since October 2020.  And Kraken’s own 

public statements about FIL have since reinforced the expectation of profits from an 

investment in FIL due to the managerial efforts of Protocol Labs.  As Kraken has 

stated on its website: “If the Filecoin network grows and more users trust it with their 

data, and more miners supply disk-space, then the amount of transactions requiring 

FIL should grow.  The price of FIL should rise since the amount of FIL available is 

limited.” 

67. Section V.E of this Complaint provides further allegations specific to the 

11 Kraken-Traded Securities, detailing the development of these crypto assets and the 

public statements and economic realities based upon which reasonable investors 

would have expected to profit from these crypto assets.   

C. Kraken Was Required to Register with the Commission 

68. Because the crypto assets available through the Kraken Trading Platform 

and the Kraken Services included crypto asset securities traded as investment 

contracts, Kraken was subject to U.S. securities laws. 

69. As previously noted, to fulfill the purposes of the Exchange Act, 

Congress imposed registration and disclosure obligations on certain defined 

participants in the national securities markets, including but not limited to brokers, 

dealers, exchanges, and clearing agencies. 

70. During the Relevant Period, Kraken acted as an exchange, broker, 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 17 of 90



  
 

COMPLAINT 18  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

dealer, and clearing agency with respect to crypto asset securities. 

71. Nonetheless, Kraken has never registered with the Commission as a 

national securities exchange, broker, dealer, or clearing agency.  Moreover, there is 

no exemption from registration with the Commission that would apply to Kraken. 

1. Kraken Failed to Register as a National Securities Exchange 

a. Registration of Exchanges 

72. In enacting registration provisions for national securities exchanges, 

Congress found in Section 2(3) of the Exchange Act [15 U.S.C. §78b(3)] that: 
Frequently the prices of securities on such exchanges and 
markets are susceptible to manipulation and control, and the 
dissemination of such prices gives rise to excessive 
speculation, resulting in sudden and unreasonable 
fluctuations in the prices of securities which (a) cause 
alternately unreasonable expansion and unreasonable 
contraction of the volume of credit available for trade, 
transportation, and industry in interstate commerce, (b) 
hinder the proper appraisal of the value of securities and 
thus prevent a fair calculation of taxes owing to the United 
States and to the several States by owners, buyers, and 
sellers of securities, and (c) prevent the fair valuation of 
collateral for bank loans and/or obstruct the effective 
operation of the national banking system and Federal 
Reserve System. 
 

73. Accordingly, Section 5 of the Exchange Act [15 U.S.C. § 78e] requires 

an organization, association, or group of persons that meets the definition of 

“exchange” under Section 3(a)(1) of the Exchange Act, unless otherwise exempt, to 

register with the Commission as a national securities exchange pursuant to Section 6 

of the Exchange Act.   

74. Section 3(a)(1) of the Exchange Act [15 U.S.C. § 78c(a)(1)] defines 

“exchange” to mean “any organization, association, or group of persons, whether 

incorporated or unincorporated, which constitutes, maintains, or provides a market 

place or facilities for bringing together purchasers and sellers of securities or for 

otherwise performing with respect to securities the functions commonly performed by 

a stock exchange as that term is generally understood, and includes the market place 

and the market facilities maintained by such exchange.”   

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 18 of 90



  
 

COMPLAINT 19  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

75. Exchange Act Rule 3b-16(a) [17 C.F.R. § 240.3b-16(a)] further defines 

certain terms in the definition of “exchange” under Section 3(a)(1) of the Exchange 

Act, including “[a]n organization, association, or group of persons,” as one that: “(1) 

[b]rings together the orders for securities of multiple buyers and sellers; and (2) 

[u]ses established, non-discretionary methods (whether by providing a trading facility 

or by setting rules) under which such orders interact with each other, and the buyers 

and sellers entering such orders agree to the terms of a trade.” 

76. Registration of a trading platform as an “exchange” under the Exchange 

Act is a bedrock Congressional requirement that permits the SEC to carry out its role 

overseeing the national securities markets.   

77. For example, registered exchanges must enact rules that, as required by 

Section 6 of the Exchange Act, are “designed to prevent fraudulent and manipulative 

acts and practices, to promote just and equitable principles of trade … and, in general, 

to protect investors and the public interest.”  

78. These rules are subject to review by the SEC under Section 19 of the 

Exchange Act [15 U.S.C. § 78s], both at the time of initial registration and 

subsequently whenever the exchange wishes to add, delete, or amend a rule.  This 

review process is designed to ensure that securities marketplaces operate in a manner 

consistent with the Exchange Act as their practices and procedures evolve over time 

and to protect investors and the integrity of securities markets that affect national 

commerce and the economy.  

b. Kraken Operates an Unregistered Securities Exchange 

79. During the Relevant Period, Kraken used means and instrumentalities of 

interstate commerce to bring together the orders of multiple buyers and sellers of 

crypto asset securities, including the Kraken-Traded Securities.  Using a trading 

facility programmed with non-discretionary rules under which orders interact, Kraken 

connected these buyers and sellers to agree upon terms for trades in these securities.  

As a result, Kraken maintained and provided a marketplace for bringing together 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 19 of 90



  
 

COMPLAINT 20  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

buyers and sellers of securities.  Kraken was therefore required to register with the 

Commission as a national securities exchange or operate pursuant to an exemption to 

such registration but failed to do so. 

80. The Kraken Trading Platform makes available to its customers more 

than 220 crypto assets, including crypto asset securities, for trading.   

81. Kraken operates the Kraken Trading Platform through the use of a 

“trading engine” that matches customer orders based, in part, on price and time 

priority.   

82. Orders are stored in Kraken’s central limit order book, a common 

functionality for many exchanges that tracks the price, size, time of submission, and 

other characteristics of each submitted order.  Kraken maintains a separate order book 

for each crypto asset trading pair. 

83. Kraken not only engaged in the conduct of a securities exchange, it 

described itself as one.  Kraken describes its operations, the Kraken Trading 

Platform, and the Kraken Services using terms from securities laws and the securities 

industry.  For example, Kraken calls its Trading Platform an “Exchange” or the 

“Kraken Exchange.”  

84. According to a document prepared by Kraken’s finance department in 

September 2022:  
[The] trading platform (the “Exchange” or “Kraken Exchange”) allows 
institutional and retail investors (the ‘customers’) to purchase, sell or 
exchange [a crypto asset] for another [crypto asset] or fiat currency.  
Customers can initiate a limit order, market order, and certain other order 
types similar to those available on a traditional commodities or stock 
exchanges.  Kraken then fills those orders using an internally developed 
matching algorithm that allows multiple order transactions being matched 
amongst each other. 
 

85. Kraken further acted as an exchange by: (i) handling customer 

applications, order entries, and displaying order information; (ii) offering a variety of 

order types; (iii) charging fees per executed order; and (iv) matching the orders of 

buyers and sellers. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 20 of 90



  
 

COMPLAINT 21  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

i. Customer Applications, Order Entry, and Display 

86. Kraken allows customers to enter orders to trade on the Kraken Trading 

Platform via Kraken’s customer applications or an API.  An API is a software 

intermediary permitting two programs to communicate.   

87. Kraken itself also may enter orders into the Kraken Trading Platform as 

principal and be a counterparty to trades against customers.  Customers are not 

provided with any disclosures as to whether the counterparty to their trade on the 

Kraken Trading Platform is another Kraken customer or Kraken acting as principal, 

or any additional protections when Kraken is acting as principal. 

88. Through Kraken’s customer applications or API, Kraken customers can 

place a variety of buy and sell orders for crypto assets, including crypto asset 

securities.  Through the Kraken Trading Platform, Kraken then matches the orders of 

buyers and sellers with each other. 

89. Kraken provides customers with a live feed of Kraken’s order book—

which shows bids and offers for each crypto asset available for trading on the 

platform—as well as a crypto asset’s trading history on the Kraken Trading Platform.  

A customer may also view their own account information, including the customer’s 

trade history, and the prices and sizes of its executed trades.       

90. Kraken has multiple customer applications, including web, mobile, and 

desktop applications.  Some are designed to be “beginner friendly,” and others are 

designed for a “professional trading experience.”   

91. The “professional” style applications offer features that mimic trading 

terminals offered or used by registered securities intermediaries.  For example, 

Kraken advertises its “Kraken Pro” application as “a one-stop destination for 

advanced crypto traders” that is “fully equipped with must-have advanced trading 

tools and features, addressing all your trading needs in one place,” where traders can 

“identify trades with full-featured charting, technical indicators and compare up to 4 

markets at once” as well as “monitor the action with live order books and streaming 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 21 of 90



  
 

COMPLAINT 22  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

trades.”  

92. From 2017 until it was retired on September 30, 2023, Kraken offered an 

application named Cryptowatch which it described as a “premium trading terminal.”  

Through Cryptowatch, Kraken provided “trading services for over 25 cryptocurrency 

exchanges,” including the Kraken Trading Platform.  Cryptowatch, among other 

things, allowed Kraken customers to place orders on “multiple crypto exchanges from 

a single platform.”  For example, Kraken customers who were also customers of one 

of those “exchanges” could place orders on that trading platform using the 

Cryptowatch application’s automated connection.   

93. Kraken’s website (www.Kraken.com) also functioned as a web-based 

application providing customers with an interface for trading crypto assets on the 

Kraken Trading Platform.  A tab or link on the Kraken website called “Markets” led 

customers to a page listing the current price for the hundreds of crypto assets 

available for trading on the Kraken Trading Platform, and also displayed the high and 

low price for each asset over the previous 24 hours, the percentage change in price 

during that same period, and the total value of all trading of that asset that occurred 

over that period. 

94. The crypto assets listed on the “Markets” page were listed by full name 

and trading symbol and displayed in descending order from largest to smallest based 

on the previous 24-hour trading volume.  The “Markets” page also displayed 

approximately five crypto assets under the category of “trending” for those assets that 

had the highest volume of trading over the previous 24 hours and those that had the 

highest percentage of gains or losses in value over that same period. 

95. Another tab or link on the Kraken Trading Platform website called 

“Trade” led visitors to a listing of the order book for the various crypto assets 

available for trade on the platform.  One side of the order book displays the current 

buy orders in descending order from highest bid price to lowest while the other side 

of the order book displays the sell orders in ascending order from lowest asking price 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 22 of 90



  
 

COMPLAINT 23  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

to the highest.   

96. The “Trade” page also displayed a “price chart” graph for the selected 

crypto asset which reflects the trading volume of the token over a selected period of 

time (i.e., 1 day, 5 days, 1 month, 3 months, 6 months, 1 year, 5 years) and a “depth 

chart” graph which displayed the current “mid-market price” (i.e., the middle point 

between the highest bid price and lowest asking price for a particular asset) and the 

“spread” (i.e., the difference between the highest bid and lowest asking price) for that 

asset.   

ii. Order Types 

97. Kraken offers the ability for buyers and sellers to place multiple order 

types, including but not limited to, market (trade at the best available price in the 

order book), limit (trade at a specified price or better), stop loss (market order 

triggered at the stop price), take profit (market order entered when last traded price 

reaches a specified price), and settle position (closes a customer’s margin position).   

98. Kraken requires customers, when submitting orders, to input various 

parameters, including those similar to parameters used in trading non-crypto 

securities: crypto asset trading symbol, size, price, and order type.  Customers may 

also place automated, algorithmic trades using Kraken’s APIs.   

99. Kraken offers certain customers the ability to trade using margin on the 

Kraken Trading Platform.  Kraken extends margin credit (from its proprietary 

inventory) to these customers for buying and selling certain crypto assets, including 

crypto asset securities.  Kraken charges percentage-based fees for opening a 

leveraged position as well as for maintaining a leveraged position. 

100. Unless trading on margin, a Kraken customer must have an available 

balance of the relevant crypto asset or fiat currency in their account to cover the total 

value of the order plus any applicable fees.   

101. All orders are stored in Kraken’s order book. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 23 of 90



  
 

COMPLAINT 24  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

iii. Fees  

102. Similar to brokers and exchanges in the traditional securities markets, 

Kraken charges a fee or commission on each executed trade. 

103. Kraken’s transaction-based fees vary depending on the trading pair, a 

user’s 30-day trading volume, and other factors. 

104. Kraken’s website states: “[T]rading fees are reduced according to the 

USD value of [the customer’s] total volume traded by [a customer’s] account over the 

previous 30 days.”  Kraken’s website states that Kraken “reward[s] user[s] who drive 

liquidity to Kraken” and “[t]he more you trade, the more you save.” 

105. More specifically, Kraken uses a maker-taker fee schedule with volume 

incentives based on the customer’s previous 30-day activity.  In a maker-taker model, 

an executed order that takes liquidity is charged a fee, while the resting order that 

makes liquidity (the order against which the taker order executes) is given a rebate, 

which is generally less than the amount of the taker fee, allowing the platform to keep 

the difference.   

106. Kraken’s maker fee ranges from 0.00% to 0.16% of the principal amount 

traded, depending on the trader’s 30-day volume.   

107. The taker fee ranges from 0.10% to 0.26% of the principal amount 

traded, depending on the trader’s 30-day volume.  Kraken deducts the taker fee for 

each transaction from the customer’s Kraken account. 

iv. Order Matching 

108. The Kraken Trading Platform matches the orders of buyers and sellers 

pursuant to rules that Kraken has programmed into its matching engine.   

109. After a buyer or seller enters an order, Kraken’s software performs 

certain checks, such as for erroneous order conditions, disruptive pricing, self-trading 

and other violations of Kraken policies, and ensures that the customer has sufficient 

funds (in the form of crypto assets, fiat currency, or margin) to settle any resulting 

transaction and pay applicable fees.   

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 24 of 90



  
 

COMPLAINT 25  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

110. If the order passes these checks, Kraken sends the order to its central 

limit order book where it is eligible to be matched and executed by the Kraken 

Trading Platform’s automated matching engine (the “Kraken Matching Engine”). 

111. Aside from periods of maintenance or outages, the Kraken Trading 

Platform is always open for trades, operating 24 hours a day, every day.   

112. The servers for the Kraken Matching Engine are located within the 

United States.   

113. If an order is not immediately executed upon entry, the Kraken Trading 

Platform will include the order in its order book for potential matching with one or 

more orders from other buyers or sellers.  The platform will then update the 

customer’s account balance to reflect the open order. 

114. There is an order book for each crypto asset trading pair, e.g., an order 

for trading U.S. Dollars to the crypto asset security called “Cardano” and represented 

by the trading symbol “ADA” may be referred to as the “ADA-USD” order book.  

The Kraken Matching Engine matches orders based on price-time priority within that 

order book. 

115. Kraken describes publicly on its website some of the “detailed trading 

rules for operating” the Kraken Trading Platform.  Kraken’s website informs traders 

that: (i) orders placed on Kraken’s order book are prioritized according to price; (ii) 

buy orders are prioritized in decreasing order of price with the highest bid placed at 

the top of the order book; (iii) sell orders are prioritized in increasing order of price 

with the lowest ask placed at the top of the order book; (iv) orders with same price 

are aggregated in the order book and are filled in a first in, first out manner; and (v) 

conditional orders are stored separately from the order book on a “not held” or 

reserved basis and are placed on the order book when an asset’s price meets the pre-

specified condition and price. 

v. Direct Sales 

116. Kraken does not restrict issuers or promoters from publicly offering and 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 25 of 90



  
 

COMPLAINT 26  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

selling crypto assets, including each of the Kraken-Traded Securities, on the Kraken 

Trading Platform.  Nor does Kraken implement any policies or procedures to prevent 

issuers from offering and selling their crypto assets to the public on the Kraken 

Trading Platform.   

117. Multiple issuers sold their respective crypto assets on the Kraken 

Trading Platform through market makers.   

118. Kraken is aware that crypto asset issuers offer and sell their own 

holdings via the Kraken Trading Platform, in part because Kraken itself facilitated 

them doing so. 

119. For example, the issuer of ALGO (the native crypto asset to the 

Algorand blockchain) used a market maker (“Market Maker 1”) to offer and sell 

ALGO, including on the Kraken Trading Platform. 

120. In April 2020, a representative of Market Maker 1 emailed Kraken 

representatives, stating in part, “As you know we are providing liquidity for a number 

of customers (token issuers), Algorand is the only one from our existing customers 

that is listed in Kraken and we would like to know if we can help you in any way 

with your due diligence with other [Market Maker 1] customers that would in my 

opinion be suited for Kraken.” 

121. In response, a Kraken representative stated, in part, “I saw [Market 

Maker 1] and assumed straight market making-related discussions” and that another 

Kraken representative was “moving forward with all new asset reviews.”  A call was 

arranged to “cover both new asset DD + MM discussions.” 

122. In this context, “DD” is shorthand for “due diligence” and “MM” is 

shorthand for “market maker.”  

123. In May 2020, the Kraken representative emailed the Market Maker 1 

representative, stating in part, “I hope that you have been well since we spoke a few 

weeks ago.  As a quick follow-up, I wanted to provide some general benefits and 

liquidity guidelines that we look for in MM parents (attached).  It would also be great 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 26 of 90



  
 

COMPLAINT 27  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

to explore how Kraken and [Market Maker 1] can further collaborate going forward.  

Do you have for a call early next week to discuss these?” 

124. Market Maker 1 also offered and sold ADA, FIL, FLOW, ICP, MATIC 

and NEAR via the Kraken Trading Platform on behalf of their respective issuers. 

125. Other market makers offered and sold crypto assets via the Kraken 

Trading Platform on behalf of their issuers. 

126. The issuers of the following Kraken-Traded Securities all sold their 

respective crypto asset securities on the Kraken Trading Platform through market 

makers during the Relevant Period:  ADA, ALGO, FIL, FLOW, ICP, MATIC, and 

NEAR.   

127. Such sales were part of the respective issuer’s offers and sales of their 

crypto asset securities into the public trading markets. 

128. Kraken did not inquire or query whether a market maker was selling 

crypto assets on behalf of an issuer. 

2. Kraken Failed to Register as a Broker-Dealer 

a. Registration of Broker-Dealers 

129. Absent an applicable exemption or exception, Section 15(a) of the 

Exchange Act [15 U.S.C. § 78o(a)] generally requires brokers and dealers to register 

with the SEC, and a broker or dealer must also become a member of one or more 

“self-regulatory organizations” (“SROs”), which in turn require members to adhere to 

rules governing the activities of the SRO’s members. 

130. Section 3(a)(4) of the Exchange Act [15 U.S.C. § 78c(a)(4)] defines 

“broker” generally as “any person engaged in the business of effecting transactions in 

securities for the account of others.” 

131. Section 3(a)(5) of the Exchange Act [15 U.S.C. § 78c(a)(5)] defines 

“dealer” generally as “any person engaged in the business of buying and selling 

securities for his own account, through a broker or otherwise.” 

132. The regulatory regime applicable to broker-dealers is a cornerstone of 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 27 of 90



  
 

COMPLAINT 28  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

the federal securities laws and provides important safeguards to investors and market 

participants.  Registered broker-dealers are subject to comprehensive regulation and 

rules that include recordkeeping and reporting obligations, SEC and SRO 

examination, and general and specific requirements aimed at addressing conflicts of 

interest, among other things.  All of these rules and regulations are critical to the 

soundness of the national securities markets and to protecting investors in the public 

markets. 

133. To preserve the maintenance of fair and orderly markets, avoid conflicts 

of interests, and protect investors, Section 11(a) of the Exchange Act [15 U.S.C. § 

78k(a)] prohibits broker-dealers from effecting transactions for their own accounts on 

exchanges where they are a member. 

134. Further, broker-dealers must abide by certain financial responsibility 

requirements under the Exchange Act.  For example, broker-dealers are required to 

make and maintain certain business records to assist the firm in accounting for its 

activities and to assist securities regulators in examining the firm’s compliance with 

securities laws.  17 C.F.R. § 240.17a-3, 17a-4.  Broker-dealers are also prohibited 

under what is known as the “Customer Protection Rule” from using customer 

securities and cash to finance their own business.  17 C.F.R. § 240.15c3-3.  By 

segregating customer securities and cash from a firm’s proprietary business activities, 

the rule increases the likelihood that customer assets will be readily available to be 

returned to customers if a broker-dealer fails. 

b. Kraken Functions as a Broker 

135. During the Relevant Period, Kraken used, and continues to use, means 

and instrumentalities of interstate commerce to effect transactions in crypto asset 

securities for the accounts of others, and regularly participated in these securities 

transactions at key points in the chain of distribution.   

136. Kraken solicited, and continues to solicit, potential investors in crypto 

asset securities and hold itself out as selling crypto asset securities.   

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 28 of 90



  
 

COMPLAINT 29  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

137. As alleged above, Kraken provided, and continues to provide, a system 

for customers to enter orders in securities, to route and handle those customer orders, 

and to take compensation by charging customers fees for these services.   

138. Kraken handled, and continues to handle, customer funds and customers’ 

crypto asset securities (which it commingled and treated as fungible with its own 

crypto assets) through Kraken-controlled accounts and crypto wallets.   

139. Kraken was therefore required to register with the Commission as a 

broker but did not do so. 

i. Kraken Views Itself as a Broker and Solicits 

Customers for Trading Crypto Asset Securities 

140. In internal documents, Kraken calls itself a “broker” and states that its 

operations are similar to brokers in traditional markets.  

141. Internally, Kraken identifies itself as a broker in other ways.  For 

example, on a Kraken corporate organizational chart, Kraken labels Payward 

Ventures (along with other Kraken entities) as a client-facing “Broker Entity.” 

142. In its internal policies, Kraken refers to Payward Ventures as a “Local 

Spot Broker” or the acronym “LSB.” 

143. Kraken further refers to its customer accounts containing crypto assets or 

fiat as a customer’s “brokerage account.” 

144. Kraken regularly solicits customers to open accounts at Kraken to trade 

crypto assets, including the Kraken-Traded Securities, on the Kraken Trading 

Platform and through the Kraken Services, including through marketing and posts on 

its website, applications, and on social media. 

145. For example, Kraken has posted on X (formerly known as Twitter), with 

the handle “@KrakenFX” information about: crypto assets, including crypto asset 

securities, available to trade on the Kraken Trading Platform, including new assets or 

those newly available for margin trading; Kraken’s promotions for customers; trading 

support notifications; enhanced trading features of the Kraken Trading Platform; links 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 29 of 90



  
 

COMPLAINT 30  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

to Kraken interviews and publications; and responses to specific posts by Kraken 

customers.   

146. Kraken regularly posts comments in the Kraken forum on Reddit, 

including referring customers to Kraken’s support services and providing updates 

about the status of the Kraken Trading Platform. 

147. Kraken regularly posts to its blog (blog.kraken.com) promotional 

materials and information encouraging customers to trade crypto assets, including 

crypto asset securities, on the Kraken Trading Platform and through the Kraken 

Services. 

148. Through these various communication channels, Kraken provides 

instructions to potential customers on how to open a trading account. 

149. Through its website and applications, Kraken provides detailed 

information about the crypto assets, including the Kraken-Traded Securities, that 

trade on the Kraken Trading Platform and through the Kraken Services, including 

price charts and market statistics, price movements, volume, and information about 

how to trade those crypto assets.  For example, Kraken maintains a “Learn” webpage 

and online “Crypto Guides” that provide resources regarding crypto assets and 

trading crypto assets, as well as a “Prices” webpage that highlights top “Trending 

Cryptocurrencies” and crypto assets with the “Biggest Gains.”  

150. Kraken also has marketed monetary incentives and promotions aimed at 

attracting more customers to the Kraken Trading Platform.  For example, in or around 

November 2019, Kraken launched the “Kraken Affiliate Program,” which rewards 

existing Kraken customers who refer new customers to Kraken.  Under the Kraken 

Affiliate Program, existing Kraken customers receive “20% on the trading fees 

collected from clients you refer to us for the lifetime of the client with Kraken – up to 

$1,000 USD payout per referral.” 

ii. Kraken Controls Customer Assets 

151. In 2021, Kraken held more than $5 billion in customer fiat and more 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 30 of 90



  
 

COMPLAINT 31  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

than $33 billion in customer crypto assets. 

152. Kraken maintains its customers’ crypto assets and funds in crypto 

wallets and bank accounts that it controls.   

153. To deposit crypto assets into a Kraken trading account, customers must 

transfer crypto assets from an existing crypto wallet to a Kraken-controlled crypto 

wallet.  Similarly, to deposit fiat currency into a Kraken trading account, customers 

must make a deposit to a Kraken-controlled bank account using a wire transfer, bank 

transfer, or other means.   

154. When a customer submits a request to withdraw funds or crypto assets, 

Kraken transfers them from a Kraken-controlled bank account or crypto wallet to the 

customer’s designated account or crypto wallet.  

155. According to Kraken’s terms of service, all digital assets held in a 

Kraken account are “custodial assets held by Payward for” the benefit of the 

customer.  Kraken disclaims any ownership or title to digital assets held in Kraken 

customer accounts. 

156.   Kraken uses shared blockchain addresses called “omnibus accounts,” 

which it controls, to hold crypto assets on behalf of customers.  Kraken holds the 

private keys for these addresses and maintains internal, or off-chain ledgers, to record 

individual customer holdings for their respective accounts.   

157. In documents provided to its auditor, Kraken stated “crypto assets are 

not separated by type of client, geography, margin vs. non-margin etc.”  

iii. Kraken Offers Trading on Margin 

158. During the Relevant Period, Kraken offered, and continues to offer, 

extensions of margin credit (from its proprietary inventory) to customers for buying 

and selling certain crypto assets, including crypto asset securities. 

159. Kraken advertises on its website that it offers “over 100 margin-enabled 

markets for you to buy (go ‘long’) or sell (go ‘short’) a growing number of 

cryptocurrencies with up to 5x leverage.” 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 31 of 90



  
 

COMPLAINT 32  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

160. If executed, margin transactions are executed on the Kraken Trading 

Platform using the Kraken Matching Engine. 

161. Kraken maintains physical or constructive custody of all crypto assets or 

fiat currency using margin for the duration of a customer’s open margined position.  

162. Kraken charges additional fees for margin orders.   

163. Kraken charges percentage-based fees, based on the amount of margin 

credit extended, for opening a leveraged position as well as maintaining a leveraged 

position. 

c. Kraken Functions as a Dealer 

164. During the Relevant Period, Kraken used means and instrumentalities of 

interstate commerce to effect transactions in crypto asset securities while engaged in 

the business of buying and selling securities for its own account.  Through the Kraken 

Services, such as Instant Buy and the OTC Desk, as well as its own proprietary 

trading, Kraken bought and sold crypto asset securities on multiple platforms, 

including the Kraken Trading Platform, as part of its regular business.  Kraken was 

therefore required to register with the Commission as a securities dealer but did not 

do so. 

i. Instant Buy 

165. Kraken Instant Buy allows customers to “instantly” buy, sell, or 

“convert” crypto assets, including the Kraken-Traded Securities, with Kraken acting 

as the counterparty in all cases.  

166. Kraken’s website states that the Instant Buy feature “allows you to 

convert between any crypto and cash assets.”   

167. To use the service, a customer logs in to her account and click Buy, Sell, 

or Convert.  The customer would then be presented with a default asset and a price 

offered by Kraken to Buy, Sell, or Convert the asset.   

168. To change the asset, the customer opens a search field where she can 

scroll through a list of assets (shown with the asset’s price) or type in the name of the 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 32 of 90



  
 

COMPLAINT 33  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

asset to Buy, Sell, or Convert. 

169. Kraken charges users of the Instant Buy feature a fee and in certain 

cases, a “spread.”   

170. Kraken does not publish a general fee schedule or explain when or how a 

“spread” will be charged in addition to the fee.  Instead, Kraken displays the fees for 

the particular transaction.   

171. The customer must agree to the price for the asset offered by Instant Buy 

as well as the transaction fee, which Kraken assesses if the transaction is executed. 

172. The price quote Kraken provides to a customer in the Instant Buy feature 

is derived from Kraken’s review of the pending orders on its order book on the 

Kraken Trading Platform. 

173. For example, if a customer wants to purchase 10 units of the Kraken-

Traded Security Cardano (ADA) using Instant Buy, Kraken reviews the order book 

for ADA on the Kraken Trading Platform and presents a price quote valid for a 

specified period of time and the fees it would charge to complete the transaction.  If 

the customer accepts, Kraken then uses or leverages its own capital or crypto assets to 

acquire the 10 ADA on the Kraken Trading Platform, and then sells these 10 ADA to 

its customer and promptly settles the trade by ledger debits and credits. 

ii. OTC Desk 

174.  During the Relevant Period, Kraken offered the OTC Desk as a 

“premium service that allows traders to execute orders off the open Kraken 

exchange” for large orders of crypto assets, including the Kraken-Traded Securities, 

valued at $100,000 or more (although it may service smaller orders).   

175. Customers may send a request for a quote to the OTC Desk.  Kraken 

would typically respond with a quote at which it would be willing to trade with the 

customer.   

176. Kraken acts as principal to fill orders placed through the OTC Desk.   

177. To fill the orders placed with the OTC Desk, Kraken uses proprietary 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 33 of 90



  
 

COMPLAINT 34  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

assets, places orders (in its own account) on the Kraken Trading Platform, uses its 

own inventory, or places orders on third-party trading platforms. 

178. Customers interface with the OTC Desk through email or telephone, or 

by logging into their Kraken account and using the OTC Desk’s online portal or an 

online chat function.   

179. On its website, Kraken states, “We do not charge you any fees for our 

[OTC Desk] service.  The bid or offer price we show is the ‘all inclusive’ price.”   

180. Kraken’s Terms of Service state that it may charge a mark-up or mark-

down “between the price [Kraken] buys or sells an Asset in a transaction with you 

and the price it is able to obtain in subsequent transactions with third parties, and . . .  

such spread will not be reflected in the transaction fees you are charged at the time of 

your purchase or sale.”   

181. Kraken’s OTC Desk settles transactions in various ways depending on 

the manner it filled the customer’s order. 

182. Kraken offered the OTC desk for orders of crypto assets, including 

Kraken-Traded Securities. 

iii. Proprietary Trading 

183.   During the Relevant Period, Kraken also engaged in proprietary trading 

of crypto assets, including crypto asset securities and Kraken-Traded Securities, for 

its own account separate from the Kraken Services. 

184. According to Kraken’s financial statements, it stopped engaging in 

proprietary trading separate from the Kraken Services during the second quarter of 

2020. 

185. From the beginning of 2020 until it stopped in the second quarter, 

Kraken generated approximately $47 million in revenue from the proprietary trading 

of crypto assets. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 34 of 90



  
 

COMPLAINT 35  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

3. Kraken Failed to Register as a Clearing Agency 

a. Registration of Clearing Agencies 

186. Congress has determined that “[t]he prompt and accurate clearance and 

settlement of securities transactions, including the transfer of record ownership and 

the safeguarding of securities and funds related thereto, are necessary for the 

protection of investors and persons facilitating transactions by and acting on behalf of 

investors.”  15 U.S.C. § 78q-1.  

187. Section 17A(b) of the Exchange Act [15 U.S.C. § 78q-1(b)] accordingly 

generally makes it unlawful “for any clearing agency, unless registered in accordance 

with this subsection, directly or indirectly, to make use of the mails or any means or 

instrumentality of interstate commerce to perform the functions of a clearing agency 

with respect to any security.” 

188. Section 3(a)(23)(A) of the Exchange Act [15 U.S.C. § 78c(a)(23)(A)] 

defines the term “clearing agency” as “any person who acts as an intermediary in 

making payments or deliveries or both in connection with transactions in securities or 

who provides facilities for comparison of data respecting the terms of settlement of 

securities transactions, to reduce the number of settlements of securities transactions, 

or for the allocation of securities settlement responsibilities,” as well as “any person 

… who (i) acts as a custodian of securities in connection with a system for the central 

handling of securities whereby all securities of a particular class or series of any 

issuer deposited within the system are treated as fungible and may be transferred, 

loaned, or pledged by bookkeeping entry without physical delivery of securities 

certificates, or (ii) otherwise permits or facilitates the settlement of securities 

transactions or the hypothecation or lending of securities without physical delivery of 

securities certificates.” 

189. Registered clearing agencies are subject to comprehensive regulation—

including recordkeeping requirements and SEC examination—under the Exchange 

Act and the rules thereunder, providing important safeguards to investors and market 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 35 of 90



  
 

COMPLAINT 36  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

participants, and to the maintenance of fair competition.  Moreover, properly 

registered clearing agencies must enact a set of rules to govern their and their 

members’ behavior, and these rules are subject to review by the SEC. 

b. Kraken Functions as a Clearing Agency 

190. During the Relevant Period, Kraken’s conduct in the settlement of crypto 

asset securities transactions and as a security depository with respect to crypto asset 

securities traded on the Kraken Trading Platform and through the Kraken Services, 

including Instant Buy and the OTC Desk, constitutes clearing agency activity.  

Kraken was therefore required to register with the Commission as a clearing agency 

but did not do so. 

191. Kraken has and continues to act as an intermediary in making payments 

and deliveries when facilitating the settlement of crypto asset securities transactions, 

including transactions in the Kraken-Traded Securities.  

192. After a customer order is matched, resulting in a trade (whether against 

another customer or Kraken itself), Kraken settles the trade through its internal ledger 

system by debiting and crediting the relevant balances of funds or crypto assets in the 

customer’s (or customers’) account(s).   

193. According to a Kraken internal document, its internal ledgers are 

“designed to function similarly to a ‘stock record’ account, like the one that is 

typically maintained by a broker-dealer that custodies its customers’ holdings.”   

194. In this way, all trades on Kraken’s Trading Platform “occur ‘off-chain’ 

on the Kraken Exchange,” meaning that they are recorded and settled on Kraken’s 

internal ledgers without any crypto asset being transferred from one blockchain 

address to another (i.e., “on-chain”). 

195. According to trading rules posted on Kraken’s website, after matching 

buy and sell orders, “Kraken settles all filled orders immediately, by debiting and 

crediting the relevant balances of assets in both traders’ accounts.”   

196. Kraken’s Terms of Service state that Kraken will use “commercially 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 36 of 90



  
 

COMPLAINT 37  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

reasonable efforts to settle trades” within two days of execution. 

197. Kraken has and continues to act as a security depository for crypto asset 

securities, including the Kraken-Traded Securities, that are traded on the Kraken 

Trading Platform and through the Kraken Services.   

198. Kraken holds these crypto assets in omnibus wallets for which Kraken 

holds the private keys, and Kraken provides a system for the central handling of 

securities whereby crypto asset securities are treated as fungible and ownership 

entitlements are transferred by bookkeeping entry without any on-chain transfers.   

D. Kraken’s Business Practices Create Heightened Risks for its 

Customers 

199.  As an unregistered entity that nonetheless operates as a securities 

broker, dealer, exchange, and clearing agency, Kraken operates in ways that would 

not be permissible under the federal securities laws and regulations.     

1. Kraken Fails to Separate the Competing Functions of Its 

Business  

200. In U.S. securities markets, the functions of “exchanges,” “broker-

dealers,” and “clearing agencies” described above are typically carried out by 

separate legal entities that are independently registered and regulated by the SEC.  

Separation of these core functions aims to minimize conflicts between the interests of 

securities intermediaries and the investors they serve.  Registration and concomitant 

disclosure obligations allow the SEC to oversee the business of intermediaries and 

their relationship with investors, in order to, among other things, protect investors 

from manipulation, fraud, and other abuses. 

201. While providing the services of an exchange, broker, dealer, and clearing 

agency to its customers, Kraken does not separate these functions. 

202. Investors in securities markets do not interact directly with exchanges or 

clearing agencies but instead are customers of broker-dealers who effect transactions 

on investors’ behalf.  Only broker-dealers (or natural persons associated with a 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 37 of 90



  
 

COMPLAINT 38  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

broker-dealer) may become members of a national securities exchange.  In addition, 

broker-dealers who have customers must become members of the Financial Industry 

Regulatory Authority (“FINRA”), an SRO that imposes its own rules and oversight 

over broker-dealers, particularly as to protecting retail investors. 

203. Kraken is not a member of FINRA. 

204. Registered national securities exchanges and clearing agencies are also 

SROs, and therefore must submit all of their proposed rules and rule changes to the 

SEC for review. 

205. Kraken does not submit its rules or proposed rules to the SEC for 

review.    

206. As noted, the Exchange Act also subjects registered intermediaries to 

important record keeping and inspection requirements.  For example, Section 17 of 

the Exchange Act [15 U.S.C. § 78q] requires registered national securities exchanges, 

broker-dealers, and clearing agencies to make and keep records as the SEC prescribes 

by rule, and subjects those records to reasonable periodic, special, or other 

examinations by representatives of the SEC. 

207. Kraken does not submit itself to examinations by representatives of the 

SEC. 

208. These provisions are designed to ensure that intermediaries follow the 

rules designed to protect investors and to promote fair and efficient operation of the 

securities markets, given their importance to the economic health of the nation.  

These provisions also seek to ensure, among other things, that investors’ securities 

orders are handled fairly and transparently, that securities transactions result in 

settlement finality, and that investors’ assets are protected and can be recovered if 

necessary. 

209. In failing to comply with any SEC registration requirements, Kraken 

puts its customers’ assets at a higher risk of loss than customers of registered 

securities intermediaries. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 38 of 90



  
 

COMPLAINT 39  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

2. Kraken Commingles Its Customers’ Crypto Assets and Fiat 

with Its Own 

210. The U.S. securities laws protect customer assets by, among other things, 

ringfencing customer assets from corporate use.  Had it registered as a broker-dealer, 

Kraken would be required to appropriately account for and segregate customer cash 

and securities and would be subject to examination, inspection, and disclosure 

requirements aimed at detecting and preventing the failure to appropriately segregate 

customer assets. 

211. Kraken’s Terms of Service stated that “custodial assets held by Payward 

[are] for [a customer’s] benefit” and title is “not transferred to Payward.” 

212. Nonetheless, Kraken’s commingles customer crypto assets with its own.  

213. Commingling customer and proprietary assets creates a risk that, when 

customers request withdrawals of their assets, those assets might be encumbered 

(e.g., due to hypothecation, or liens or other interests being filed against such 

property to secure an obligation of Kraken) or gone completely.  

214. Concerning Kraken’s custody of crypto assets, in its audit plan for 2022, 

Kraken’s independent auditor stated: “There is a significant risk of loss of custodial 

(and proprietary) digital assets through theft/loss of public keys or improper controls 

over accounting for custodial digital assets that are comingled between customers and 

with the Company’s proprietary digital assets.” 

215. Kraken’s Terms of Service also stated that “Payward makes no 

warranty” that customers’ crypto assets “are held by [the customer] free and clear of 

any security interest or other lien or encumbrance by Payward or others, including but 

not limited to Payward’s creditors.” 

216. With respect to fiat, Kraken maintains bank accounts that are designated 

as custodial accounts for the purpose of holding customer fiat. 

217. Kraken maintains separate bank accounts that are designated as 

operational accounts for the purpose of holding corporate fiat.  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 39 of 90



  
 

COMPLAINT 40  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

218. Yet, Kraken commingles corporate and customer fiat in some of these 

accounts. 

219. In its 2020 and 2021 financial statements, Kraken describes how it may 

commingle custodial funds with its own.  Kraken’s financial statements state that 

“[a]mounts shown as Customer custodial funds are restricted to use based on the 

terms of service with our customers.  Such funds may be in separate accounts or 

commingled with cash that is unrestricted.”  “Unrestricted” cash is Kraken’s 

proprietary or corporate cash for which it has “unrestricted rights of withdrawal and 

use….” 

220. Kraken’s independent auditor has observed that as of December 31, 

2021, approximately $33.6 million of customer custodial fiat appeared to be in 

Kraken’s operational bank accounts.  Kraken’s independent auditor similarly 

observed that as of December 31, 2020, approximately $30.8 million of customer 

custodial fiat appeared to be in Kraken’s operational accounts.  

221. Separately, Kraken treats some fiat in custodial accounts as its own – 

and not the customers’ – supposedly because Kraken’s customers owe Kraken fees 

arising from the customers’ trading.  For example, Kraken has at times paid 

operational expenses using funds held in customer custodial accounts.  This is 

another example of improper commingling of funds that increases investor risk and in 

which registered securities intermediaries are prohibited from engaging.  

222. Kraken does not disclose to its customers that Kraken commingles 

customer and corporate fiat in either customer custodial accounts or Kraken’s 

corporate operating accounts. 

3. Kraken’s Internal Control Failures 

223. As part of the audit of Kraken’s 2021 financial statements, Kraken’s 

independent auditor identified multiple control deficiencies and informed Kraken’s 

board of directors of a significant deficiency in the company’s internal controls.  

224. In 2023, Kraken found errors relating to customer custodial cash and 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 40 of 90



  
 

COMPLAINT 41  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

crypto assets held for customers in 2020 and 2021.   

225. These errors were a result of Kraken’s poor recordkeeping practices and 

failure to properly record margin transactions, underscoring the deficient internal 

controls at the company. 

226. In materials provided to its auditor, Kraken stated: “In August 2023, the 

Company self-identified the possibility of an error.”  This error was largely based on 

Kraken’s failure to establish a sub-ledger before offering its margin lending product. 

227. Kraken’s auditor determined that these errors were material to the 2020 

and 2021 financial statements of Payward and Payward Ventures. 

E. Crypto Assets Securities Available Through Kraken 

228. As previously alleged in Section B, Kraken has made available for 

trading on its platform and through its services many crypto assets that are offered 

and sold as investment contracts and thus are securities.  Each of these crypto asset 

securities was offered and sold on the Kraken Trading Platform or through the 

Kraken Services during the Relevant Period.  Each of the crypto asset securities was 

sold as part of an investment contract, which as discussed involves an investment of 

money in a common enterprise from which the investor reasonably expects profits or 

returns derived from the entrepreneurial or managerial efforts of others.  Set forth 

below are details regarding certain previously identified Kraken-Traded Securities, 11 

crypto asset securities which were available on the Kraken Trading Platform and 

through the Kraken Services.     

1. ADA 

229. “ADA” is the native token of the Cardano blockchain.  The Cardano 

blockchain was created in 2015 by an Ethereum co-founder, Charles Hoskinson, and 

an Ethereum operations manager, Jeremy Wood.  As described on Cardano’s website, 

the Cardano blockchain protocol is built on its own proof-of-stake consensus protocol 

called Ouroboros, which is purportedly energy efficient.  Hoskinson and Wood 

created ADA and purported to limit the supply of ADA to 45 billion tokens.  From 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 41 of 90



  
 

COMPLAINT 42  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

2015 to 2017, Input Output Hong Kong (“IOHK”), a company founded by Hoskinson 

and Wood, conducted a token sale during which they sold approximately 25.9 billion 

ADA in exchange for bitcoin, at what equates to an average price of $0.0024 per 

token, raising approximately $62 million for Cardano. 

230. From the time of its offering and continuing through the Relevant 

Period, ADA was offered and sold as an investment contact and is therefore a 

security. 

231. The price of all ADA tokens goes up or down together. 

232. Today, three entities are responsible for Cardano: (1) the Cardano 

Foundation, a Swiss entity that is the legal custodian of the Cardano protocol and 

owner of its brand; (2) IOHK, an engineering company controlled by Hoskinson and 

Wood responsible for designing, building, and maintaining the Cardano blockchain; 

and (3) Emurgo, an entity with offices in New York and California that, according to 

its website, is “essentially the for-profit arm of Cardano,” endeavoring “to advance 

the platform and drive adoption through commercial ventures.”  As explained on the 

Cardano website, “IOHK develops the technology, the Cardano Foundation is 

responsible for supervising development and promoting Cardano, while Emurgo 

drives commercial adoptions.”  These three entities collectively received 5.2 billion 

ADA following the initial mining of ADA, or approximately 16.7% of the initial 

token supply of 31.1 billion ADA.  

233. These three entities have used the proceeds from ADA sales to fund the 

development, marketing, business operations, and growth of the Cardano protocol. 

For example, investor funds were used to enact the Cardano Roadmap created by 

IOHK—specifically, to develop each of the Cardano development “eras” as shown in 

the following screenshot from the Cardano website:  

 

 

 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 42 of 90



  
 

COMPLAINT 43  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

 

 

 

 

 

234. Kraken has made ADA available for buying, selling, and trading on the 

Kraken Trading Platform and through the Kraken Services since approximately 

September 2018.  

235. The information publicly disseminated by Cardano, IOHK, and Emurgo 

would lead a reasonable investor, including those who purchased ADA since 

September 2018, to view ADA as an investment.  Specifically, investors would 

reasonably expect to profit from holding ADA based on the efforts of these groups to 

grow the Cardano platform because this growth would in turn increase the demand 

for and the value of ADA.  

236. In public statements on Twitter and other social media, as well as on 

their respective websites, including statements made while ADA was available to 

trade on the Kraken Trading Platform and through the Kraken Services, the Cardano 

Foundation, IOHK, and Emurgo have touted their expertise in developing blockchain 

networks and described the efforts they have made and will continue to make to 

develop the Cardano protocol and blockchain and attract users to the technology.  

These statements include:   

(a) an “ask me anything” video stream posted by Charles Hoskinson 

at IOHK in or about October 2018 in which he answered questions posed by the live 

public audience and in which he stated that he believes ADA will achieve his goal of 

a future market capitalization of $1 trillion; 

(b) a blog post by Charles Hoskinson at IOHK in or around January 

2020 about how the decade from 2020 to 2029 will be the decade of Cardano and 

which stated, “[a]s we exit 2020 and throughout the next decade, incentives will be a 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 43 of 90



  
 

COMPLAINT 44  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

source of continuous research.  The better we get, the faster the feedback loop 

becomes, the faster we can grow to achieve a billion users and become a truly global 

social operating system that is beneficial to everyone.  With all that being said, 

commercialization, technology, and incentives are the three things that will need to be 

aligned for us to achieve that coveted number one spot.  We are building Cardano for 

a reason…it is a commercial project and we want to see it grow”;  

(c) an announcement by IOHK in or around September 2021 about 

the creation of smart contracts on the protocol, which supposedly would “pav[e] the 

way” for additional demand for the blockchain protocol;  

(d) a blog post by IOHK in or around November 2022 describing its 

efforts to introduce “innovations, new functionality, and new features” to the 

blockchain; and  

(e) a blog post by IOHK on or around November 17, 2022, touting 

ADA being “hosted on more than 30 cryptocurrency exchanges,” and outlining 

IOHK’s plans to “improv[e] the underlying performance of the Cardano network to 

better support growth and adoption of thousands of applications with high transaction 

volumes” while giving specific examples of how this would be achieved. 

237. Public statements made by Kraken to investors about ADA and the 

Cardano Platform reinforced investors’ reasonable expectation of profits from an 

investment in ADA due to the managerial efforts of Cardano, IOHK, and Emurgohas.   

238. For example, on its website, Kraken describes for investors Cardano’s 

history, team, and development.  Specifically, Kraken’s website states that:  
A team of experts in the [crypto asset] and blockchain technology industries 
created Caradano (ADA), led by Jeremy Wood and Charles 
Hoskinson…Together, Wood and Hoskinson formed Input Output Hong 
Kong (IOHK), the research and development company behind Cardano…. 
The Cardano Foundation is a non-profit organization based in Switzerland 
that oversees the development and adoption of Cardano.  It promotes the 
use and development of Cardano, provides education and resources, and 
governs the Cardano ecosystem . . . .  A for-profit investment arm called 
Emurgo provides support to prospective Cardano developers and promotes  
the business integration of Cardano’s blockchain services. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 44 of 90



  
 

COMPLAINT 45  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

2. ALGO 

239. Algorand is a blockchain protocol founded by Silvio Micali. The 

Algorand blockchain uses a consensus algorithm it calls “pure proof-of-stake,” in 

which each user’s ability to influence the choice of a new block is proportional to its 

stake (number of tokens) in the system. 

240. “ALGO” is the native token of the Algorand blockchain, and has a 

maximum supply of 10 billion ALGO minted at the launch of the Algorand network. 

Because ALGO is the native token of the Algorand blockchain, those utilizing the 

Algorand blockchain need to hold (and potentially stake) certain amounts of ALGO. 

241. From the time of its offering and continuing through the Relevant 

Period, ALGO was offered and sold as an investment contract and is therefore a 

security. 

242. The price of all ALGO tokens goes up or down together. 

243. The Algorand Foundation Ltd. conducted an initial ALGO token sale on 

or about June 19, 2019, selling 25 million tokens at $2.40 per ALGO, raising 

approximately $60 million.  In advance of the token sale, the Algorand Foundation 

promoted the token sale on Twitter and included a link to its website. 

244. The Algorand Foundation promoted the June 19, 2019, token sale in part 

with a refund policy that allowed ALGO investors to return the ALGO to the 

Algorand Foundation one year later at 90% of the original purchase price.  The 

Algorand Foundation explained the economic rationale behind the refund policy by 

noting its own belief in and commitment to the value of ALGO, stating: “We believe 

in the underlying value of the Algorand blockchain, the Algo, and the potential of the 

borderless economy.  Our goal is to invest in the growth, sustainability and 

performance of that economy.” 

245. In promoting the ALGO token sale, the Algorand Foundation tied the 

potential growth of the Algorand blockchain to potential demand for the ALGO token 

itself, and to its own commitment to preserving a price floor for ALGO. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 45 of 90



  
 

COMPLAINT 46  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

246. In or around August 2019, the Algorand Foundation publicly offered 

ALGO investors an early refund opportunity, and ALGO investors returned a total of 

approximately 20 million ALGO tokens to the Algorand Foundation in exchange for 

a refund that was 85% of the original purchase price.  In or around June 2020, ALGO 

investors who did not refund their ALGO tokens in August 2019 were publicly 

offered a second refund window. ALGO investors returned a total of approximately 5 

million ALGO tokens for a refund that was 90% of the original purchase price. 

247. Through its rewards programs and incentive structures, the Algorand 

Foundation continued distributing tokens after the June 2019 token sale.  As of 

September 2022, approximately 6.9 billion ALGO were in circulation. 

248. Today, ALGO is available for buying, selling, and trading on crypto 

asset trading platforms in exchange for fiat currency or certain crypto assets, 

including bitcoin.  Kraken made ALGO available for buying, selling, and trading on 

the Kraken Trading Platform and through the Kraken Services in January 2020. 

249. From the time of its offering and continuing through the Relevant 

Period, ALGO was offered and sold on the Kraken Trading Platform and through the 

Kraken Services as an investment contract and is therefore a security. 

250. Today, two entities are responsible for Algorand: (1) the Algorand 

Foundation, an organization purportedly focused on Algorand “protocol governance, 

token dynamics and supporting grassroots, open-source development on the Algorand 

ecosystem,” which was incorporated in Singapore; and (2) Algorand, Inc., a company 

purportedly focused on “layer-1 development of the Algorand Protocol and enabling 

Enterprise adoption of Algorand blockchain technology.” 

251. The Algorand Foundation and Algorand, Inc. purportedly collaborate on 

projects and initiatives for the Algorand community. 

252. Shortly before the June 19, 2019, ALGO token sale, Steven Kokinos, the 

CEO of Algorand, Inc., posted a publicly available article stating: “(a) We will be 

holding our founder’s tokens for the long term and will not be selling them. (b) We 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 46 of 90



  
 

COMPLAINT 47  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

will use our founder’s tokens to participate in consensus and assist in securing the 

network, though we will never represent more than 49% of the voting. (c) We will 

use our founder’s tokens to support the ecosystem and encourage development.” 

253. The Algorand Foundation purportedly owns 500 million ALGO tokens 

and the participation and governance rewards associated with those tokens.  Also, 

members of the Algorand Foundation’s board of directors and its advisory 

committees receive ALGO as compensation. 

254. In addition to the tokens it owns, as of September 2022, the Algorand 

Foundation also controls over 3 billion ALGO tokens in wallets publicly identified as 

for “Community & Governance Rewards,” “Ecosystem Support,” and “Foundation 

Endowment,” signaling to the public that the Algorand Foundation would use the 

ALGO tokens to support the ALGO economy or ecosystem as well as to reward itself 

and participants in this ecosystem. 

255. The information publicly disseminated by Algorand, Inc. and the 

Algorand Foundation would lead a reasonable investor, including those who 

purchased ALGO since January 2020, to view ALGO as an investment.  Specifically, 

investors would reasonably expect to profit from holding ALGO based on the efforts 

of these groups to grow the Algorand blockchain and the technologies associated with 

it because this growth would in turn increase the demand for and the value of ALGO. 

256. In public statements on Twitter, as well as on their respective websites, 

Algorand, Inc. and the Algorand Foundation promote the Algorand protocol. 

257. Until approximately May 14, 2022, the Algorand Foundation promoted 

that ALGO investors could receive participation rewards (purportedly a form of 

staking by delegation) by “participation in the Algorand ecosystem via holding Algo 

in an online wallet.” 

258. As of approximately May 14, 2022, the Algorand Foundation publicly 

stated that it would replace the participation rewards that ALGO holders were entitled 

to receive with so-called governance rewards.  The Algorand Foundation described 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 47 of 90



  
 

COMPLAINT 48  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

“Governance” as a way for investors to make investment returns on their ALGO 

purchases—stating it is “a decentralized program which allows Algo holders to vote 

on the future of Algorand” and “the best way to earn rewards for holding Algo, with 

APY% of 10.02% - 14.05% seen in previous periods.” 

259. The Algorand, Inc. and Algorand Foundation websites tout their teams’ 

technical experience and expertise in the areas of cryptography and business 

development.  For example, Algorand, Inc.’s website states: “Blending technical 

mastery and professional stability, the Algorand team consists of internationally 

recognized researchers, mathematicians, cryptographers, and economists along with 

proven business leaders from global technology companies.” 

260. In a March 2022 report, the Algorand Foundation publicly stated that it 

had started a new program to incentivize the “growth of the ecosystem, which is the 

fundamental need of a maturing blockchain.  The program includes a series of loans 

to help the growth of our DeFi network and to expand the institutional investments in 

the ecosystem . . . .  The Algorand Ecosystem team facilitates the development and 

growth of the ecosystem and developer pipeline including undiluted funding, 

technical onboarding and standardization conventions for ASAs, Wallets and AVM.” 

261. Algorand, Inc. and the Algorand Foundation also take steps to 

incentivize third parties to participate in and attract users to the ALGO protocol.  For 

example, in or around February 2022, the Algorand Foundation announced a $10 

million incentive for developers that could make the Algorand blockchain compatible 

with applications built on the Ethereum blockchain. 

262. Also in or around February 2022, the Algorand Foundation announced a 

section of its website called AlgoHub, “a virtual community designed to grow the 

pipeline of #Algorand developers.” 

263. These statements led reasonable ALGO investors throughout the 

Relevant Period to expect that the demand for ALGO would likely increase based on 

Algorand, Inc.’s and Algorand Foundation’s efforts to increase demand for the 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 48 of 90



  
 

COMPLAINT 49  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

Algorand technology, thereby resulting in a price increase for ALGO. 

264. Public statements made by Kraken to investors about ALGO and the 

Algorand blockchain reinforced investors’ reasonable expectation of profits from an 

investment in ALGO due to the managerial efforts of Algorand, Inc. and the 

Algorand Foundation.  

265. For example, on its website, Kraken provides investors with analysis 

about the price of ALGO.  Specifically, Kraken’s website states: 
Algorand is a new public blockchain, meaning its technology, while novel, 
has not yet seen much testing under real-world market conditions….  
Investors may also see Algorand as a viable part of a cryptocurrency 
portfolio should they believe that proof-of-stake blockchains, which lower 
the cost of participating in a blockchain’s operation, will ultimately prove 
more successful in the market. 
 

3. ATOM 

266. “ATOM” is the native crypto asset of the Cosmos Hub.  The Cosmos 

project was launched in 2017 by Jae Kwon and Ethan Buchman.  According to the 

Cosmos website (https://cosmos.network), Cosmos is an ecosystem of blockchains 

designed to scale and interoperate with each other, and the Cosmos team aims to 

“create an Internet of Blockchains” or “a network of blockchains able to 

communicate with each other in a decentralized way.” 

267. Cosmos is built on a proof-of-stake consensus mechanism. 

268. The Cosmos Hub is a central blockchain that provides services to other 

blockchains connected to it, including “the largest interchain token exchange, shared 

security through interchain security, bridges to ethereum (ETH) and bitcoin (BTC), 

and secure custodianship of digital assets.”  Cosmos described the Cosmos Hub as 

“the first hub among many hubs that [w]as launched within the Cosmos Network of 

sovereign blockchains.” 

269. ATOM is described as “a license for the holder to vote, validate, or 

delegate to other validators” and “can also be used to pay for transaction fees to 

mitigate spam.” 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 49 of 90



  
 

COMPLAINT 50  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

270. In 2017, the Interchain Foundation (the “ICF”), a Swiss non-profit 

organization of which Buchman is President, sold ATOM by conducting what it 

termed the “Cosmos Fundraiser.”  These so-called “donations” were to be used for 

the development of the Cosmos network.  Pursuant to this offering, participants 

received ATOM tokens in exchange for Bitcoin or Ethereum tokens.  The ICF offered 

ATOM at a value of $0.10 per token, with a 25 percent discount on that price for 

partnering “strategic funders” and a 15 percent discount for individual “Pre-

Fundraisers.”  By April 2017, ICF had raised approximately $17.3 million in BTC 

and ETH through its “fundraiser” by selling ATOM tokens. 

271. From the time of its offering and continuing through the Relevant 

Period, ATOM was offered and sold as an investment contract and therefore a 

security. 

272. The price of all ATOM tokens goes up or down together. 

273. At least four entities are currently or have been significantly involved in 

the development of Cosmos: (1) the ICF, which was created in 2017 by Kwon and 

Buchman and was formed “to support the development of Cosmos and the ecosystem 

that will contribute to the Cosmos Network”; (2) Interchain GmbH, LLC, a German 

limited liability company and subsidiary of ICF, which employs a team of 

approximately 35 software engineers and operations personnel working primarily on 

the Cosmos network; (3) All in Bits, Inc. d/b/a Tendermint (n/k/a Ignite, Inc.) 

(“Tendermint”), a Delaware corporation created by Kwon and headquartered in 

Berkley, California, with which the ICF contracted in 2017 “to develop the initial 

portion of the CESS [Cosmos Essential Software and Services]”; and (4) 

NewTendermint, Inc., a Delaware corporation of which Kwon is CEO and which 

supports and develops the Cosmos ecosystem. 

274. In February 2022, NewTendermint was spun off from All in Bits, Inc. 

(d/b/a Tendermint), which was rebranded to and became Ignite, Inc.  Ignite has 

focused on developing products and developing tools “to onboard the next wave of 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 50 of 90



  
 

COMPLAINT 51  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

developers and crypto enthusiasts to Cosmos.”  

275. ATOM has been available for buying, selling, and trading on the Kraken 

Trading Platform and through the Kraken Services since April 2019. 

276. The information publicly disseminated by ICF, Kwon, and Buchman 

would lead a reasonable investor, including those who purchased ATOM since April 

2019, to view ATOM as an investment.  Specifically, ATOM holders would 

reasonably expect to profit from the efforts of these entities to grow the Cosmos 

protocol because this growth would in turn increase the demand for and value of 

ATOM. 

277. The ICF collected and pooled the $17.3 million raised from investors in 

the Cosmos Fundraiser.  In promoting the Cosmos Fundraiser, the ICF represented 

that the funds raised would be deployed to develop the Cosmos network.  For 

example, the March 31, 2017, “Cosmos Plan” posted on the Cosmos GitHub page 

provided that the raised funds would be used “to contract with entities”—including 

Tendermint—“and their agents for the development of the Cosmos Essential 

Software and Services (CESS) and to help foster a community around CESS.”  The 

ICF later disclosed how they spent investor funds, posting “Projects Funded in 2018” 

to the ICF’s public GitHub page. 

278. In the 2017 Cosmos Whitepaper and “Fundraiser Plan” (both of which 

were publicly available on the Cosmos website), Kwon and Buchman described the 

Cosmos Fundraiser and said that the 236 million ATOM tokens initially minted 

would be distributed as follows: 10% to the “Cosmos Network Foundation” (the 

ICF), 10% to All in Bits, Inc. (Tendermint), 5% to initial or “lead donors,” and 75% 

to “the donors of the Cosmos Fundraiser” (investors). 

279. In public statements on the Cosmos and ICF websites, including 

statements made and available during the period when ATOM was available to trade 

on the Kraken Trading Platform, the ICF described its expertise in developing 

blockchain networks.  Further it detailed the efforts it and related entities, including 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 51 of 90



  
 

COMPLAINT 52  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

Interchain GmbH and Tendermint, were making to develop the Cosmos network and 

attract users to the technology.  For example: 

(a) Cosmos’s website stated that “Cosmos is supported by the Interchain 

Foundation” and identifies Tendermint, Interchain GmbH, and 15 other 

“Cosmos core development teams.” 

(b) The ICF website stated that it “funds, stewards, and responsibly 

advances the Cosmos ecosystem” and that its “core teams maintain the 

protocols and applications” in the “Cosmos tech stack” (including 

Cosmos Hub and Cosmos SDK).  Further, the site identified 35 “Team” 

members, including Cosmos Hub and Cosmos SDK project, strategy, 

and developer relations leads, and software and developer relations 

engineers,” that “[w]e help support projects like the Cosmos Network.”  

In describing the Team’s “Engineering and Product” work, the site said 

“[w]e are primarily interested in general purpose technologies that 

expand the environment, capabilities, and security of the Cosmos 

ecosystem.”  

(c) The “Projects Funded in 2018” post on the ICF’s GitHub page (posted in 

2019) identified grants, service agreements, and investments to develop 

the Cosmos network in 2018. 

(d) The ICF website has touted the “Builders Program,” which “provides 

mentorship, structured support and access to a wide network of partners” 

and “is led by a team experienced in building the ecosystem’s software 

and infrastructure.”  The site has said the program “is made by builders 

for builders, linking together our team of entrepreneurs, software 

engineers and designers with years of experience in building and 

launching chains” and is a vehicle for ICF to “help teams navigate the 

ecosystem by giving access to our large network of investors, exchanges, 

custodians, auditors, development and design agencies, data providers 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 52 of 90



  
 

COMPLAINT 53  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

and infrastructure partners.” 

280. Public statements made by Kraken to investors about ATOM and the 

Cosmos protocol reinforced investors’ reasonable expectation of profits from an 

investment in ATOM due to the managerial efforts of ICF, Kwon, and Buchman. 

281. For example, on its website, Kraken describes for investors ICF’s 

history, team, and development.  Kraken also provides a link to the Cosmos 

“roadmap” for investors to “stay connected on the current development status of 

Cosmos” and directs investors to the “Cosmos blog” for regular updates from the 

“Cosmos team.”  

4. FIL 

282. “FIL” is the native crypto asset of the Filecoin network.  The Filecoin 

network is an open-source data storage network that runs on a blockchain created by 

Protocol Labs, Inc., which describes itself as a research, development, and 

deployment lab for network protocols. 

283. In or around July 2014, Protocol Labs and its founder and CEO, Juan 

Batiz-Benet (“Benet”), published a whitepaper entitled “Filecoin: A Cryptocurrency 

Operated File Storage Network,” which Protocol Labs updated approximately three 

years later, setting forth a “path toward the construction of the Filecoin network.” 

284. In 2017, Protocol Labs conducted a two-part token sale: first, an 

“Advisor Sale” for advisors of Protocol Labs and Filecoin; and second, a “Public 

Sale” for the broader community, supposedly limited to “accredited investors” 

(collectively “2017 FIL Sales”).  In these sales, investors could use U.S. dollars and 

certain crypto assets to buy Filecoin. 

285. Protocol Labs ran the Advisor Sale from July 21 to July 24, 2017, and 

sold FIL to approximately 150 investors, which included individuals, institutional 

investors, trusts, and established syndicate investors.  These investors paid $.075 per 

FIL and were offered “vesting/discount choices of 1-3 years and 0-30% discount.” 

286. In the August 2017 Public Sale, the FIL price was set based on a “public 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 53 of 90



  
 

COMPLAINT 54  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

sale price function,” described as “price = max ($1, amountRaised / $40,000,000) 

USD/FIL” and increased thereafter based on the amount sold.  For the Public Sale, 

like the Advisor Sale, investors received discounted pricing for agreeing to longer 

vesting periods. 

287. From the time of its offering and continuing through the Relevant 

Period, FIL was offered and sold as an investment contract and therefore a security. 

288. The price of all FIL tokens goes up or down together. 

289. In connection with the 2017 FIL Sales, which were effected pursuant to 

Simple Agreement for Future Tokens (SAFTs), Protocol Labs filed forms with the 

SEC claiming an exemption from registration for the offerings of FIL pursuant to 

SAFTs. 

290. Protocol Labs reported that they raised more than $205 million for the 

development of Filecoin in the 2017 FIL Sales and that the value of FIL increased in 

the days following the close of the sale based on the fluctuation in value of certain 

invested crypto assets. 

291. Protocol Labs pooled investment proceeds from the token sales to fund 

the development and growth of the Filecoin network. 

292. On October 15, 2020, Protocol Labs launched the mainnet, a publicly 

accessible version of the Filecoin network, and FIL began being minted and 

distributed.  There was a stated maximum circulating supply of 2,000,000,000 FIL, 

meaning that no more than 2 billion FIL will ever be created, with issuance aligning 

with network growth. 

293. FIL has been available for buying, selling, and trading on the Kraken 

Trading Platform and through the Kraken Services since October 2020. 

294. Since the October 2020 launch, Protocol Labs has continued to use funds 

from the sale of FIL to develop, expand, and promote the Filecoin network. 

295. The information Protocol Labs has publicly disseminated, including after 

the initial FIL sales, would lead a reasonable investor, including those who have 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 54 of 90



  
 

COMPLAINT 55  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

purchased FIL since October 2020, to view FIL as an investment.  Specifically, FIL 

holders would reasonably expect to profit from Protocol Lab’s efforts to grow its 

protocol because this growth would in turn increase the demand for and value of FIL. 

296. The Protocol Labs Filecoin Team posted about the sale: “The Filecoin 

Sale was a critical milestone in the lifetime of the project.  It raised the funding 

necessary to grow our team, to create the network, and build all the software tools 

needed to operate and use the network.”  They further stated, “Filecoin success will 

reward the investment of supporters like you by simultaneously driving down the cost 

of storage and increasing the value of the Filecoin tokens that incentivize miners to 

provide storage.  We’re thrilled by your widespread, enthusiastic interest and look 

forward to staying engaged and including you in our success.” 

297. In addition, Benet and the Filecoin team released a document titled, 

“Filecoin Token Sale Economics,” that provided information about the 2017 FIL 

Sales and the Filecoin network, stating: 
Protocol Labs requires significant funding to develop, launch, and grow the 
Filecoin network. We must develop all the software required: the mining 
software, the client software, user interfaces and apps, network 
infrastructure and monitoring, software that third-party wallets and 
exchanges need to support Filecoin, integrations with other data storage 
software, tooling for web application and dapps to use Filecoin, and much 
more. We must deploy the network, facilitate its growth to large scale, 
market to and onboard miners and clients, bring key partners into the eco 
system, and much more. 

298. That document also stated that FIL was to be distributed to groups 

“critical to the network’s creation, development, growth, and maintenance” with an 

allocation that tied Protocol Labs’ profits to those of FIL holders: 

(a) 70% to Filecoin Miners – “For providing data storage service, maintaining 

the blockchain, distributing data, running contracts, and more.” 

(b) 15% to Protocol Labs – “For research, engineering, deployment, business 

development, marketing, distribution, and more.” 

(c) 10% to investors – “For funding network development, business 

development, partnerships, support, and more.” 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 55 of 90



  
 

COMPLAINT 56  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

(d) 5% to Filecoin Foundation – “For long-term network governance, partner 

support, academic grants, public works, community building, etc.” 

299. The “Filecoin Token Sale Economics” document further explained: “We 

have structured the token sale to reward a large group of people that can help us build 

the [Filecoin] network, by selling Filecoin at what we think is a much lower price 

than it will be worth some day (caveat: as with any risky investment of course we 

cannot make guarantees or predictions).” 

300. As described in a July 2017 blog post, the Advisor Sale in particular was 

intended, in part, to secure “long-term commitment to and alignment with the 

Filecoin network” and “to reward their contributions so far and/or future potential 

with the capability to invest early.” 

301. The “Filecoin Token Sale Economics” and another document made 

available to investors ahead of the 2017 FIL Sales, the Filecoin Primer, stated that 

Filecoin purchasers would be able to sell the token on crypto asset trading platforms 

in the future. 

302. The Filecoin Primer also touted “Large Scale Value Creation,” 

explaining that the Filecoin Network: “will create value in a number of ways, and the 

total impact of the network can be tremendous.  Growth of the network will drive 

demand for the token. The more value created by the Filecoin Network, the more 

things people and organizations spend Filecoin on, and the greater the value and 

worth of the token.” 

303. Similarly, a Confidential Private Placement Offering Memorandum 

(“PPM”) in connection with the 2017 FIL Sales stated: “A significant portion of the 

proceeds of the Offering will be used by the Company to achieve the Minimum 

Viable Product and subsequently to buildout a decentralized storage network, 

powered by a blockchain and the Filecoin protocol token.” 

304. Moreover, both before and after the 2017 FIL Sales, Protocols Labs 

consistently touted its expertise and ability, and led the work to develop the Filecoin 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 56 of 90



  
 

COMPLAINT 57  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

network for launch.  In an August 2, 2017 Q&A, Benet stated: “Over the last few 

years, Protocol Labs has proved to the world that we know how to deploy capital to 

create valuable projects, valuable technology, and valuable software. . . .  We know 

how to deploy capital effectively.  We have great plans for the Filecoin network and 

its surrounding ecosystem, at many levels of funding.  We plan to deploy 100s of 

millions of dollars over the next few years to make Filecoin the world’s best storage 

network, not just the best decentralized storage network.” 

305. Benet also addressed the funding needs, pricing, and economics of FIL 

in that August 2017 Q&A, stating: “Since we think and are working for Filecoin to be 

worth a lot more in the future, then we naturally want to sell it at the highest price the 

market will bear.  Subject to reason, if we can sell it higher, then we should.” 

306. Benet also explained publicly that Filecoin needed funding in order to be 

able to compete: “Our (collective) competition is the massive, centralized cloud 

storage companies.  We are talking about the tech titans – AWS, Google Cloud, and 

Microsoft Azure – the three biggest companies in the world have cloud businesses 

with BILLIONS of dollars in revenues, not just funding.  In order to put up this fight, 

we will need significant resources.  Yes, resources in the hundreds of millions will 

empower us to develop Filecoin as fast as we can, as well as the dozens of other tools 

and services required to make Filecoin a service and ecosystem remotely close to 

competitive with the centralized counterparts.” 

307. The economic structure of FIL distribution and public statements about 

that structure further invited investors to view FIL as an investment in Protocol Labs’ 

and the Filecoin Foundation’s efforts.  These factors would lead reasonable investors 

to conclude that FIL investors’ interests were aligned with those of FIL’s developers.  

Specifically, the tokens allocated to Protocol Labs and Filecoin Foundation were to 

vest over a six-year period beginning after the network launch.  As stated in the 

“Filecoin Token Sale Economics” document, Protocol Labs and the Filecoin 

Foundation “aim[ed] to make Filecoin massively valuable in the long-term, and we 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 57 of 90



  
 

COMPLAINT 58  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

want to attract investors similarly interested in long-term value creation and growth” 

and “[v]esting creates long-term alignment” because “Protocol Labs and the Filecoin 

Foundation are deeply committed for the long-term, and 6-year vesting boldly proves 

that to all other network participants.” 

308. Filecoin has also implemented a process to “burn” (i.e., destroy) FIL 

tokens, thereby reducing the FIL supply.  As with the “burn” mechanisms of other 

crypto asset securities, this marketed burning of FIL as part of the Filecoin’s 

economic features has led investors reasonably to view their purchase of FIL as 

having the potential for profit. 

309. Following the release of the protocol in October 2020, Protocol Labs 

continued to be heavily involved in the development and promotion of the Filecoin 

network and its pursuit of success. 

310. In late 2021, Raul Kripalani, a Protocol Labs researcher, introduced the 

“Filecoin Virtual Machine” (“FVM”), described as a “core pillar in the next evolution 

of the decentralized storage ecosystem.”  On November 6, 2022, Kripalani tweeted, 

“These were amazing weeks for the #FVM + team. Momentum and expectation are 

through the roof. 100s of teams building on the Wallaby testnet.  Many promising 

@Filecoin apps to launch on mainnet the minute FEVM kicks in.  Pumped to be 

building the future of $FIL with these rockstars!”  The Protocol Labs Twitter account 

has posted updates regarding FVM, including through April 2023. 

311. The Protocol Labs team has continued to release “roadmaps” or “master 

plans,” available online and through recorded video presentations, that showcase 

future development plans for the Filecoin network.  For example, in September 2022, 

Benet delivered the keynote address at FIL-Singapore, which “gathered builders from 

around the world to build, share experiences, and hear from other community 

members on what’s next for the network.”  In his address, Benet presented “The 

Filecoin Masterplan,” which included building the world’s largest decentralized 

storage network. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 58 of 90



  
 

COMPLAINT 59  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

312. In a February 3, 2023, Protocol Labs blog post addressing the impact of 

the “crypto winter” economic downturn, Benet touted the Filecoin team’s supposed 

successes to date in growing the Filecoin ecosystem, “[w]e’ve achieved a tremendous 

amount in the past several years - from Filecoin launch; to scaling IPFS to millions of 

users; building one of the fastest growing developer ecosystems; supporting 300+ 

companies across the network; growing movements like SBS and FTC; launching 

testnets for FVM, Saturn, SpaceNet, and Bacalhau just last quarter; and much more.” 

313. Public statements made by Kraken about FIL and the Filecoin network 

reinforced investors’ reasonable expectation of profits from an investment in FIL due 

to the managerial efforts of Protocol Labs. 

314. For example, on its website, Kraken provides investors with analysis of 

the price of FIL.  Further, Kraken’s website states: 
Should Filecoin be able to successfully offer decentralized storage service 
that can’t be easily tampered with by corporations or governments, it could 
also gain more users, especially if centralized services begin to lose the trust 
of their customers.  Like Bitcoin, the total amount of FIL that will ever be 
created is also limited, in this case, to 2 billion tokens.  If the Filecoin 
network grows and more users trust it with their data, and more miners 
supply disk-space, then the amount of transactions requiring FIL should 
grow. The price of FIL should rise since the amount of FIL available is 
limited. 

5. FLOW 

315. FLOW is the native token for the Flow blockchain, which was launched 

in 2020 by Dapper Labs, an entity incorporated in Canada.  Flow was purportedly 

designed as “the foundation for a new generation of games, applications, and the 

digital assets that power them.”  

316. The Flow website boasts that the Flow proof-of-stake blockchain is 

designed in a manner that makes it different, faster, and more efficient than other 

blockchain networks due to its “multi-node architecture,” which separates the 

functions traditionally performed by one validator (collection, consensus, execution, 

and verification) across multiple validator nodes.  

317. Between 2019 and 2020, Dapper Labs raised approximately $24.6 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 59 of 90



  
 

COMPLAINT 60  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

million in “pre-launch” funding in two purportedly private fundraising rounds, 

including from venture capital firms, in return for convertible notes that were 

expected to convert to FLOW tokens.  The FLOW tokens were subject to 24-month 

lock-up periods during which they could not be transferred, sold, or used in 

transactions.  

318. Subsequently, Dapper Labs held another token sale consisting of two 

phases, which raised approximately $19 million.  Additionally, Dapper Labs 

conducted other sales of FLOW for which it filed forms with the SEC claiming that 

the sales were exempt from registration under Rule 506(b) of Regulation D, including 

one on September 12, 2019 covering sales to 31 investors in the total amount of 

approximately $11.2 million, and two others on December 9 and 15, 2021, each for 

sales to a single investor in the amount of approximately $6.47 million and $23 

million, respectively.  

319. From the time of its offering and continuing through the Relevant 

Period, FLOW was offered and sold as an investment contract and therefore a 

security. 

320. The price of all FLOW tokens goes up or down together. 

321. Since approximately January 2021, FLOW has been available for 

buying, selling, and trading on the Kraken Trading Platform and through the Kraken 

Services.  

322. According to the FAQ page on the Flow website: “[FLOW] is the 

exclusive token for staking, delegating, paying transaction fees, and paying storage 

fees.  It is also the primary token used for buying, selling, and trading assets and 

experiences on Flow.”  Approximately 1.25 billion FLOW tokens were initially 

created, and as of May 2023, approximately 72% of all FLOW is in circulation.  

323. Given that FLOW tokens are required in order to interact with the Flow 

blockchain, the demand for and the value of the FLOW token would increase as a 

result of the efforts by Dapper Labs and the Flow development team to develop the 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 60 of 90



  
 

COMPLAINT 61  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

Flow blockchain network and increase demand for its features.  The increase in value 

of FLOW would inure to all FLOW holders—investors and the Dapper Labs/Flow 

development team alike.  Dapper Labs and the Flow development team have 

promoted this dynamic through the publicly available information they have 

disseminated.  

324. The information publicly disseminated by Dapper Labs and the Flow 

development team would lead a reasonable investor, including those who purchased 

FLOW since January 2021, to view FLOW as an investment.  Specifically, FLOW 

holders would reasonably expect to profit from the efforts of these groups to grow the 

Flow protocol because this growth would in turn increase the demand for and the 

value of FLOW.  

325. For example, Flow’s website stated that of the total FLOW supply, 

Dapper Labs and the Flow development team collectively received 38%; pre-launch 

backers and participants in the 2020 token sale received 30%; and 32% was set aside 

for “ecosystem development” and remains under the control of Flow’s management. 

This last group of tokens, according to the website, are used to “bootstrap adoption 

and reward early participants in the network.”  

326. Below is a graph depicting the initial or “Genesis Block” token 

distribution of FLOW:  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 61 of 90



  
 

COMPLAINT 62  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

 

327. This stated distribution of FLOW tied the fortunes of FLOW holders to 

each other and to the fortunes of the Flow development team.  

328. Flow’s website further highlights its development team and its ability to 

grow and develop the Flow blockchain and the value of the FLOW token.  For 

example, it states that Flow was “[d]eveloped by the team behind some of the most 

successful crypto applications on the Ethereum network” and “Flow has been 

developed and brought to market by one of the most innovative and interdisciplinary 

teams in the world.”  

329. Indeed, according to the Flow website, since the launch of the Flow 

blockchain in or around December 2020, due to Dapper Labs’ and others’ efforts, 

“Flow’s ecosystem has grown from a small group of enthusiasts to a global 

community of over 10,000 developers, over 17 million user accounts, and over 2 

million monthly active wallets.”  

330. In addition, in its announcement of the Flow blockchain in or around 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 62 of 90



  
 

COMPLAINT 63  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

September 2019, Dapper Labs highlighted its involvement with other successful 

crypto projects and funding support it had received from various investors.  And, at a 

2022 town hall, Dapper Labs and the Flow development team explained planned 

development activities for 2023, including continued development to support the 

consumer-scale adoption of blockchain technology.  

331. Further, the Flow website describes the FLOW token as a “low-

inflation” asset—meaning that the only new tokens that would purportedly be issued 

would be distributed to stakers of the token so that FLOW investors’ holdings would 

not be diluted.  

332. Public statements made by Kraken to investors about FLOW and the 

Flow protocol reinforced investors’ reasonable expectation of profits from an 

investment in FLOW due to the managerial efforts of Dapper Labs and the Flow 

development team. 

333. For example, on its website, Kraken describes FLOW’s history, team, 

and development.  Specifically, Kraken’s website states that “[w]ith Flow, the 

team…is seeking to create a new platform that allows these types of applications to 

attract a larger number of mainstream users.  For more regular updates from the Flow 

team, you can bookmark the Flow blog, which includes tips and tutorials on the 

network and its evolving technology.” 

334. Kraken’s website also provides investors with analysis about the price of 

FLOW.  Further, Kraken’s website states that, “[i]nvestors may also seek to add 

FLOW to their portfolio should they believe in the future of blockchain platforms 

focused on game development and collectables.” 

6. ICP 

335. “ICP,” previously called “DNF” and rebranded as ICP in 2021, is the 

native token of the “Internet Computer Protocol,” a blockchain-based protocol, 

conceived in 2016 by Swiss not-for-profit DFINITY Foundation (“DFINITY”), 

which has offices in Palo Alto and San Francisco.  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 63 of 90



  
 

COMPLAINT 64  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

336. DFINITY describes the Internet Computer Protocol as a set of protocols 

that allow independent data centers around the world to band together and offer a 

decentralized alternative to the current centralized internet cloud providers and ICP as 

the token designed to interact with these systems, including to provide for processing 

power, data storage, and network bandwidth.  

337. In an April 8, 2017, Medium post, DFINITY’s founder, Dominic 

Williams, referred to the Internet Computer Protocol as an “intelligent decentralized 

cloud.”  At a 2020 Blockchain conference, he further touted the protocol as a more 

efficient replacement for big tech cloud services, servers, databases, firewalls, VPNs, 

and other services.  

338. Between 2017 and 2018, DFINITY engaged in three funding rounds: (1) 

a “Seed” round in 2017; (2) a “Strategic” round in early 2018; and (3) a “Presale” 

round in late 2018.  In these rounds, DFINITY raised the equivalent of approximately 

$170 million by selling rights to receive future ICP tokens, which did not yet exist.  

339. According to a post released by DFINITY on its website on or about 

May 10, 2021, when the network launched, the rights to “access” the ICP received in 

the seed round funds were staggered from 0 to 90-plus days.  On or about November 

19, 2022, Williams tweeted that purchasers in the initial Seed fundraiser “made out 

like bandits” when they purchased ICP for $0.03.  

340. ICP tokens first became available on multiple crypto asset trading 

platforms on or about May 10, 2021, when the network launched.  At launch, 

DFINITY minted a total of 469 million ICP tokens.  

341. From the time of its offering and continuing through the Relevant 

Period, ICP was offered and sold as an investment contract and therefore a security. 

342. The price of all ICP tokens goes up or down together. 

343. Since approximately March 2022, ICP has been available for buying, 

selling, and trading on the Kraken Trading Platform and through the Kraken Services.  

344. The information publicly disseminated by DFINITY and its founder 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 64 of 90



  
 

COMPLAINT 65  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

would lead a reasonable investor, including those who purchased ICP since March 

2022, to view ICP as an investment.  Specifically, ICP holders would reasonably 

expect to profit from the efforts of these entities to grow the Internet Computer 

Protocol because this growth would in turn increase the demand for and the value of 

ICP.   

345. For example, DFINITY stated publicly that it would use the proceeds 

from ICP sales to fund development, marketing, business operations, and growth and 

promotion of the Internet Computer Protocol, and thus demand for its ICP token.  In 

fact, DFINITY distributed approximately 24% of the ICP tokens issued in the public 

launch to support the Internet Computer platform and to pay staking rewards through 

the Internet Computer ecosystem.  Another 18% of ICP tokens were distributed to 

compensate the DFINITY team members, aligning their financial fortunes with those 

of ICP investors.  

346. Moreover, in an April 4, 2018 Medium post leading up to the 2018 

funding rounds, Williams touted: “DFINITY has received inbound interest from 

hundreds of private accredited entities such as hedge funds.”  Indeed, a number of 

venture capital firms invested in ICP.  

347. Furthermore, from ICP’s inception through today, DFINITY has 

publicly stated that its key developers, including Williams, have been and continue to 

be heavily involved in Internet Computer Protocol and have promoted their 

dedication to grow the network and increase the value of ICP.  

348. For example:  

• On June 27, 2020 Williams tweeted: “[t]he Internet Computer proj is 
propelled by extraordinary investments in R&D. DFINITY has 

assembled one of the strongest science & engineering teams in tech, 

across several research centers worldwide. This team has been 

relentlessly pushing blockchain ambition to new levels.”  

• On December 19, 2021, Williams tweeted: “[t]here’s nothing we can do 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 65 of 90



  
 

COMPLAINT 66  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

to control the price, but we feel the pain same as everyone else. There 

has been a lot of market manipulation by bad people but we remain 

focused on taking #ICP to the #1 spot.”  

• On January 25, 2023, Williams tweeted: “[w]hen I look at [crypto asset 
pricing services], I don’t look at the $ price, I look position. $ICP needs 

to be in the top 3, and I will work tirelessly to help get it there.”  

349. A month after it was launched for public trading, ICP’s price reached an 

intraday high of $700.  One month later, the price of ICP had plummeted to $72 and 

Williams began making public statements indicating the price of ICP would increase 

again.  For example, on June 10, 2021, Williams tweeted, “Major [venture capital] 

firms … hv [sic] long-term strategies & generally don’t panic dump.  Their focus is 

on moonshots because that’s what generates their primary returns.  We all need to 

keep our focus on horizon.  Watch what happens in +6/9 months.”  And, on 

September 3, 2021, Williams tweeted, “ICP seed investors’ 2000X gains; crypto’s 

largest research org; most advanced blockchain; ferocious growth.”  

350. In an ICP whitepaper released in January 2022, DFINITY promotes that 

it burns ICP tokens as a mechanism to support the price of ICP by reducing their total 

supply.  On January 20, 2023, Williams tweeted, “$ICP will eventually become 

deflationary”—meaning its supply will be reduced over time.  On its website, 

DFINITY posts a Dashboard that calculates the ongoing cycle burn rate, reflecting 

the number of ICP tokens burned.  As with other crypto asset securities set forth 

herein, this marketed burning of ICP as part of the system’s “deflationary” 

mechanism has led investors reasonably to view their purchase of ICP as having the 

potential for profit by limiting the supply of tokens available.  

351. Public statements made by Kraken about ICP and the Internet Computer 

Protocol reinforced investors’ reasonable expectation of profits from an investment in 

ICP due to the managerial efforts of DFINITY. 

352. For example, on its website, Kraken describes for investors DFINITY’s 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 66 of 90



  
 

COMPLAINT 67  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

history, team, and the development of the Internet Computer Protocol.  Further, 

Kraken provides investors with analysis about the price of ICP.  Specifically, 

Kraken’s website states: “Investors may find Internet Computer attractive based on 

its goal of creating a blockchain platform for faster transaction settlement time and 

with theoretically infinite capacity.”  Kraken website further states: “ICP’s goal of 

building a modern internet with the ability to host any scale of application, from DeFi 

and smart contract applications to tokenized internet services and websites, may also 

be of interest to those who want to add ICP to their portfolio.” 

7. MANA 

353. “MANA” is the digital token minted by Decentraland.  Decentraland is a 

virtual reality platform that began development in June 2015 but was not made 

available to the public until its launch in February 2020.  Decentraland was launched 

through an entity named Metaverse Holdings by a team of core individual developers: 

Ariel Meilich, Esteban Ordano, Manual Araoz, and Yemel Jardi.  Decentraland 

operates on the Ethereum blockchain.  According to Decentraland’s website, 

www.decentraland.org, Decentraland is a three-dimensional virtual reality platform, 

where users can create, experience, and monetize their content and applications. 

354. According to Decentraland’s website, MANA serves as the crypto asset 

involved in all transactions in the Decentraland virtual reality ecosystem.  On August 

18, 2017, Decentraland held an initial coin offering in which MANA tokens were 

exchanged for ETH tokens, raising approximately $24.1 million.  Currently, there is a 

total supply of approximately 2.19 billion MANA tokens. 

355. Decentraland offered early contributors to the Decentraland ecosystem a 

discounted price when purchasing MANA. 

356. From the time of its offering and continuing through the Relevant 

Period, MANA was offered and sold as an investment contract and therefore a 

security. 

357. The price of all MANA tokens goes up or down together. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 67 of 90



  
 

COMPLAINT 68  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

358. MANA has been available for buying, selling, and trading on the Kraken 

Trading Platform and through the Kraken Services since December 2020. 

359. The information Decentraland publicly disseminated would lead a 

reasonable investor, including those who have purchased MANA since August 2020, 

to view MANA as an investment.  Specifically, MANA holders would reasonably 

expect to profit from Decentraland’s efforts to grow the Decentraland protocol 

because this growth would in turn increase the demand for and value of MANA. 

360. Investor proceeds raised during the MANA ICO were pooled to fund the 

marketing, business expenses, and completion of the Decentraland platform.  For 

instance, on July 5, 2017—a few weeks before the MANA ICO—Jardi published a 

blog post detailing Decentraland’s intended use of revenue from the token sale as 

follows: 

 

 

 

 

 

 

 

 

361. The blog post further explained that the “top priority” for use of the 

revenue was to develop a virtual world and that even after Decentraland was created, 

“the development budget will focus on the continued improvement of the end-user 

experience within the world.” 

362. Indeed, Meilich explained in a separate blog post that after the ICO, 

Decentraland would implement a “Continuous Token Model,” where it would 

increase the MANA supply by 8 percent in the first year, followed by a lower rate in 

subsequent years, to allow Decentraland to “regularly expand while accommodating 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 68 of 90



  
 

COMPLAINT 69  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

new users … The proceeds of the tokens sold by [the Continuous Token Model] will 

finance Decentraland over the long haul, perpetually aligning it with the prosperity of 

the network.” 

363. In April 2020, the Decentraland Team announced the creation of the 

Decentraland Foundation (the “Foundation”), which today holds the intellectual 

property rights over and makes available the products and services, including virtual 

environment and tools, offered on the Decentraland platform.  Meilich publicly stated 

that the distribution of the initial supply of MANA tokens issued at the time of the 

ICO would be as follows: 20 percent to the founding team, advisors, and early 

contributors; 20 percent to the Foundation; 40 percent to be available for purchase by 

the public; and 20 percent reserved to “incentivize early users, developers, and 

partners who want to build within Decentraland.” 

364. As Meilich explained in his public blog post, “To incentivize value 

creation within Decentraland, extra tokens will be allocated to the [development 

team], organization, and a reserve to accelerate Community and Partner engagement.” 

365. For example, Decentraland publicly issued a whitepaper (“Decentraland 

Whitepaper”) describing the architecture that would be built in the virtual reality 

platform and steps that would be taken to support Decentraland’s growth.  It further 

made clear that the development of the platform was only beginning, and listed a 

number of “Challenges” that would need to be addressed in the development process 

in order for the platform to succeed. 

366. Decentraland has continued to invest efforts in new developments and 

tools for the platform.  According to Melich, even after the ICO, Decentraland was 

still “preparing a land allocation policy to ensure fair distribution, as well as a method 

for groups to purchase larger contiguous plots of land.”  Since the ICO, Decentraland 

has developed tools for purported use on its platform (e.g., the “Marketplace” and 

“Builder” tools).  In a public blog post published on March 19, 2018, the 

Decentraland team described the marketplace tool as the “first … in what will be a 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 69 of 90



  
 

COMPLAINT 70  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

series of tools.” 

367. Additionally, the Decentraland Whitepaper explained how the 

Foundation would “Foster the Network” in that it will “hold contests to create art, 

games, applications, and experiences, with prizes contingent on meeting a set of 

milestones.  At the same time, new users will be assigned allowances, allowing them 

to participate in the economy immediately.”  The Decentraland Whitepaper further 

claimed, “These financial incentives will help bootstrap the utility value of the 

network until it independently attracts users and developers.” 

368. The Decentraland Whitepaper and website have also marketed that the 

protocol “burns” (or destroys) MANA tokens when used within the Decentraland 

ecosystem. 

369. Public statements made by Kraken about MANA and the Decentraland 

Foundation reinforced investors’ reasonable expectation of profits from an 

investment in MANA due to the managerial efforts of Decentraland. 

370. For example, on its website, Kraken describes for investors MANA’s 

history, team, and development.  Further, Kraken provides investors with analysis 

about the price of MANA.  Specifically, Kraken’s website states: “When LAND is 

auctioned, the MANA tokens used to purchase the parcels are burned, or removed 

from circulation, making the supply of MANA deflationary.  This could put pressure 

on the token value as the platform grows with new users.”  “Investors may seek to 

add MANA to their portfolio should they believe in the future of virtual reality and its 

ability to connect users all over the world.” 

8. MATIC 

371. “MATIC” is the native token of the Polygon blockchain.  Polygon, 

originally called the Matic Network and rebranded as Polygon in 2021, is a 

blockchain platform created in 2017 in Mumbai, India by, among others, Jaynti 

Kanani, Sandeep Nailwal, and Anurag Arjun.  Since its creation, Polygon’s founders 

have remained actively involved with Polygon through “Polygon Labs” (“Polygon”), 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 70 of 90



  
 

COMPLAINT 71  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

an entity they also founded for “the development and growth of Polygon.”  

372. According to the Polygon website, https://polygon.technology/, the 

Polygon network is an Ethereum scaling platform that enables developers to build 

scalable user-friendly dApps with low transaction fees, purportedly by hosting 

“sidechains” that run alongside the Ethereum blockchain, and allows users to process 

transactions and initiate the transfer of assets and technology development on 

Polygon’s supposedly less congested sidechain network.  

373. Polygon issued a fixed supply of 10 billion MATIC tokens. MATIC 

holders can earn additional MATIC for staking their MATIC on the Polygon platform 

and becoming a validator, from delegating their MATIC to other validators in return 

for a portion of the fees collected from validating transactions, or from staking their 

MATIC with other third parties, such as crypto asset platforms that offer staking 

services.  

374. According to the initial whitepaper for MATIC, “Matic Tokens [we]re 

expected to provide the economic incentives … of the Matic Network [now Polygon] 

… [W]ithout the Matic Token, there would be no incentive for users to expend 

resources to participate in activities or provide services for the benefit of the entire 

ecosystem on the Matic Network.”  

375. In or around 2018, Polygon sold approximately 4 percent of the total 

supply of MATIC in two early rounds of sales raising $165,000 at a price of 

$0.00079 USD per 1 MATIC and $450,000 at a price of $0.00263 USD per 1 

MATIC.  In April 2019, Polygon sold another 19% of the total supply of MATIC to 

the public through a so-called “initial exchange offering” (or “IEO”—essentially, an 

initial offer and sale of a crypto asset security on a crypto trading platform) on the 

Binance.com crypto asset trading platform at a price of $0.00263 USD per 1 MATIC, 

raising an additional $5 million to fund development of the network.  

376. From the time of its offering and continuing through the Relevant 

Period, MATIC was offered and sold as an investment contract and therefore a 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 71 of 90



  
 

COMPLAINT 72  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

security. 

377. The price of all MATIC tokens goes up or down together. 

378. MATIC has been available for buying, selling, and trading on the 

Kraken Trading Platform and through the Kraken Services since May 2021. 

379. The information Polygon publicly disseminated would lead a reasonable 

investor, including those who purchased MATIC since May 2021, to view MATIC as 

an investment.  Specifically, MATIC holders would reasonably expect to profit from 

Polygon’s efforts to grow the Polygon protocol because this growth would in turn 

increase the demand for and the value of MATIC.  

380. For example, Polygon stated publicly, including in the whitepaper, that it 

would pool investment proceeds through its private and public fundraising to develop 

and grow its business.  

381. Following the IEO, moreover, Polygon engaged in additional MATIC 

sales, stating publicly that it was doing so in order to raise the funds needed to 

support the growth of its network.  On February 7, 2022, Polygon reported on its blog 

that it raised about $450 million through a purportedly private sale of its native 

MATIC token in a funding round to several prominent venture capital firms.  Polygon 

reported, “[w]ith this warchest, the core team can secure Polygon’s lead in paving the 

way for mass adoption of Web3 applications, a race that we believe will result in 

Ethereum prevailing over alternative blockchains.”  

382. Polygon has also reported fundraising from other marquee and celebrity 

investors.  

383. Polygon also stated that it would reserve roughly 67% of MATIC to 

support the Polygon ecosystem, the Foundation, and network operations. Another 

20% of MATIC was further reserved to compensate the Polygon team members and 

advisors, aligning their fortunes with investors’ with respect to MATIC.  

384. In addition, the Polygon blog provides frequent updates on network 

growth and developments at Polygon, including weekly statistics on active wallets 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 72 of 90



  
 

COMPLAINT 73  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

and transactions per day, as well as financial metrics such as revenue per day and 

total network revenue.  

385. Polygon has also routinely announced when crypto asset trading 

platforms have made MATIC available for trading, such as the Kraken Trading 

Platform and through the Kraken Services in or around May 2021.  

386. Polygon has explicitly encouraged MATIC purchasers to view MATIC 

as an investment in other ways.  For example, in a February 5, 2021 tweet, 14 months 

after MATIC’s single biggest price drop, Nailwal compared the token to a prize 

fighter that came back from defeat to become a champion:  

 

 

 

 

 

 

387. Also, on November 3, 2022, Nailwal stated on Twitter: “I will not rest 

till @0xPolygon gets its well-deserved ‘Top 3’ spot alongside BTC & ETH. No other 

project comes even close.”  In a May 24, 2022 “Fireside Chat” with CNBC posted on 

YouTube, Bejelic described part of “what’s different about Polygon” as: “[w]e are as 

a team very, very committed, we have a very hands on approach with all the projects 

out there, we are working around the clock on adoption and that is why we are 

currently the most adopted scaling infrastructure platform.”  Currently, the founders 

of Polygon continue to promote the platform through various social media.  For 

example, on February 21, 2023, Nailwal tweeted, and Kanani retweeted, “Polygon 

has grown exponentially.  To continue on this path of stupendous growth we have 

crystallized our strategy for the next 5 yrs to drive mass adoption of web3 by scaling 

Ethereum.  Our treasury remains healthy with a balance of over $250 million and 

over 1.9 billion MATIC.”  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 73 of 90



  
 

COMPLAINT 74  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

388. Since January 2022, Polygon has also marketed that it “burns” MATIC 

tokens accumulated as fees, indicating that the total supply of MATIC would 

decrease.  For example, in January 2022, Polygon emphatically announced a protocol 

upgrade that enabled burning in a blog post titled, “Burn, MATIC, Burn!”  As 

Polygon explained in another blog post on its website around the same time, 

“Polygon’s MATIC has a fixed supply of 10 billion, so any reduction in the number 

of available tokens will have a deflationary effect.”  As of March 28, 2023, Polygon 

had burned approximately 9.6 million MATIC tokens. This marketed burning of 

MATIC as part of the Polygon’s network’s “deflationary effect” has led investors 

reasonably to view their purchase of MATIC as having the potential for profit to the 

extent there is a built-in mechanism to decrease the supply and therefore increase the 

price of MATIC.  

389. Public statements made by Kraken about MATIC and the Polygon 

Network reinforced investors’ reasonable expectation of profits from an investment in 

MATIC due to the managerial efforts of Polygon. 

390. For example, on its website, Kraken provides investors with analysis 

about the price of MATIC.  Specifically, Kraken website states:  
“The crypto price of MATIC is subject to various factors. These include 
market demand and supply, cryptocurrency news, bull and bear markets, 
technological advancements, and adoption of the Polygon network . . . 
Positive news, such as new partnerships or regulatory developments, could 
lead to an increase in demand and, consequently, the price of MATIC.  
Technological advancements within the Polygon network could also affect 
the MATIC coin price, as a more efficient network could attract more 
users…these improvements could result in increased demand and trading 
volume.” 

9. NEAR 

391. “NEAR” is the native token of the NEAR blockchain protocol, a proof-

of-stake blockchain conceived in 2018 by Delaware corporation Near, Inc. (“Near”) 

and its founders Alexander Skidanov and Illia Polosukhin.  According to the NEAR 

whitepaper, the NEAR protocol uses a technology dubbed “Nightshade” that allows 

the volume of transactions on the network to grow indefinitely without hurting its 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 74 of 90



  
 

COMPLAINT 75  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

performance, measured in speed and transaction fees.  

392. In 2019, Skidanov and Polosukhin founded the NEAR Foundation, a 

non-profit organization under Swiss law that claims to be “responsible for contracting 

protocol maintainers, funding ecosystem development, and shepherding core 

governance of the NEAR protocol.”  

393. From Q3 2017 to Q1 2020, Near raised approximately $34.1 million 

through the offer and sale of notes that were convertible into then-nonexistent NEAR 

tokens.  In July 2019, Near filed forms with the SEC claiming its offer and sales of 

convertible notes was exempt from registration and stating that Near “intended to use 

the proceeds [of the sales] for the development of the Near protocol.”  In August 

2020, Near held an additional sale of approximately 120 million NEAR tokens.  In 

January 2022, the NEAR Foundation raised an additional $150 million through a 

purportedly “private” sale of NEAR tokens to venture capital investors.  

394. From the time of its offering and continuing through the Relevant 

Period, NEAR was offered and sold as an investment contract and therefore a 

security. 

395. The price of all NEAR tokens goes up or down together. 

396. Although U.S. investors purportedly were prohibited from participating 

in the early seed funding rounds or NEAR’s initial minting, NEAR has been available 

for purchase and sale in the United States since at least October 2020, including since 

June 2022 on the Kraken Trading Platform and through the Kraken Services.  

397.  The information publicly disseminated by Near, the NEAR Foundation, 

and their common founders would lead a reasonable investor, including those who 

purchased NEAR since June 2022, to view NEAR as an investment.  Specifically, 

NEAR holders would reasonably expect to profit from the efforts of these groups to 

grow the protocol because this growth would in turn increase the demand for and the 

value of NEAR.  

398. Approximately 35.7% of the one billion NEAR tokens initially minted 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 75 of 90



  
 

COMPLAINT 76  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

were transferred to early investors that held convertible notes.  Of the remaining 

initial supply of NEAR tokens, 14% were allocated to the “Core Contributors,” 

11.7% to “Early Ecosystem” developers, 10.0% to the NEAR “Foundation 

Endowment,” 17.2% to “Community Grants and Programs,” and 11.4% to 

“Operations Grants.”  Accordingly, the financial incentives and fortunes of Near’s 

core team members and those of early developers (who collectively owned 

approximately 25.7% of the initial supply of NEAR) were aligned with those of other 

NEAR investors (who owned approximately 35.7% of the initial NEAR supply).  

399. For example, Near stated in its SEC filings that it would pool investment 

proceeds from the sale of notes convertible into NEAR tokens to develop the NEAR 

protocol and grow Near’s business and, as recently as January of 2022, that it further 

pooled proceeds from the sale of $150,000 in NEAR tokens that month for the same 

purposes.  

400. And, as the NEAR Foundation publicly touted, it did in fact use its 

allocation of NEAR tokens to support the development of the NEAR protocol and 

ecosystem.  For example, in October 2021, the NEAR Foundation announced “$800 

million in funding initiatives targeted at accelerating growth” of the NEAR 

ecosystem.  Subsequently, in a “transparency report” blog post on the Near website, 

the NEAR Foundation stated that it had “deployed $540M in fiat and tokens during 

[the last quarter of 2021 and the first two quarters of 2022]” to support “NEAR 

ecosystem projects” and launch “regional hubs” around the world, among other 

efforts to help grow the ecosystem.  

401. NEAR’s founders remain actively involved with the NEAR protocol 

today through the NEAR Foundation.  In fact, Polosukhin sat on the NEAR 

Foundation Council (its governing group) until March 2023 and has served as its 

Chair for the past two years.  

402. In a post on one of the NEAR Foundation’s blogs discussing the role of 

the NEAR ecosystem in funding projects to continue growing the NEAR protocol, 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 76 of 90



  
 

COMPLAINT 77  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

Polosukhin likened the NEAR ecosystem to a venture capitalist picking an 

investment strategy and likened the NEAR community to investors in the NEAR 

ecosystem:  

 

403. Similarly, as an indicator of investor demand, Near has touted its high-

profile venture capital partners.  For example, until March 2023, Near’s website 

stated that NEAR is “[b]acked by the best,” followed by the logos of 10 venture 

capital firms and the following quotation from one of those firms’ partners: “NEAR 

is poised to be a leading smart contract blockchain platform, combining first-rate 

technology with a fast-growing developer ecosystem.  We are excited to support 

NEAR as we ramp up our investments in the digital asset space.”  

404. Near has also marketed the feature of the NEAR protocol that 

automatically burns 70% of all NEAR tokens accumulated as fees.  Accordingly, the 

greater the number of transactions that occur on the NEAR protocol, the greater the 

number of NEAR tokens that are burned, reducing their total supply.  As with other 

crypto asset securities set forth herein, marketing that NEAR tokens are being burned 

is designed to lead holders of surviving NEAR tokens to expect the potential for 

profit due to the reduction in their supply.  

405. Public statements made by Kraken to investors about NEAR and the 

NEAR Protocol reinforced the reasonable expectation of profits from an investment 

in NEAR due to the managerial efforts of the NEAR Foundation. 

406. For example, on its website, Kraken describes for investors NEAR’s 

history, team, and development.  Further, Kraken provides investors with analysus 

about the price of NEAR.  Specifically, Kraken’s website states: “NEAR Protocol 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 77 of 90



  
 

COMPLAINT 78  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

increases its token supply by 5% each year, with 90% of these newly released tokens 

going to validators.  The remainder goes to the blockchain’s treasury to support 

platform development.”  “Investors may wish to buy NEAR and add it to their 

portfolio should they believe in the future of sharding as a way to scale blockchain 

technology and wish to have a stake in the future development of the NEAR 

ecosystem.” 

10. OMG 

407. The so-called OMG Network, previously known as OmiseGO, was 

founded in 2017.  In or around December 2020, Genesis Block Ventures (“GBV”), a 

Hong Kong-based venture capital firm, acquired the OMG Network.  In or around 

February 2021, the OMG Network partnered with another entity to develop the so-

called Boba Network.  In or around August 2021, the OMG Network changed its 

name to the “OMG Foundation” and the following year became the “BOBA 

Foundation.” 

408. The OMG token was issued by the OMG Network as a “proof-of-stake” 

token on the OMG Network.  The OMG Network held an ICO on or about June 24, 

2017, raising approximately $25 million through the sale of OMG tokens to the 

public in exchange for ether.  The OMG Network issued a maximum supply of 

approximately 140.2 million OMG tokens, and sold approximately 65.1% of this 

supply to the public in the ICO. 

409. Today, OMG tokens are available for buying, selling, and trading on 

several crypto asset trading platforms in exchange for fiat currency (namely U.S. 

Dollars) or certain crypto assets.  Kraken made OMG available for buying, selling, 

and trading on the Kraken Trading Platform and through the Kraken Services in 

October 2019, and it remains available.   

410. From the time of its offering and continuing through the Relevant 

Period, OMG was offered and sold as an investment contract and is therefore a 

security.   

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 78 of 90



  
 

COMPLAINT 79  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

411. The price of all OMG tokens goes up or down together. 

412. The OMG Network pools the proceeds from OMG token sales to fund 

the development, marketing, business operations, and growth of the OMG Network, 

as reflected in OMG’s “Crowdfunding Whitepaper,” which used the following chart 

to explain how funds raised during the ICO would be used to develop the network: 

 

 

 

 

 

 

 

 

413. Specifically, the OMG whitepaper explained that the “[m]ajority of the 

funds raised will go towards the development of open source software.  Overall fund 

usage will be split approximately 2:1 ratio between network and end-user application 

development.”  The whitepaper also detailed how the “budget” would be used, which 

included items such as “[c]onstruct and roll-out blockchain, including full node 

client,” and “[c]onstruct and roll-out decentralized custody of funds.” 

414. The stated distribution of the OMG tokens tied the fortunes of the OMG 

token holders together and to the fortunes of the promoters.  For instance, the OMG 

tokens were allocated as follows: 65.1% for purchase by the public; 20% for “future 

costs and uses including use for network validation as part of the development and 

execution of the project” as a “reserve”; 9.9% for OMG “team members and key 

contributors who worked to develop the ideas, supporting structures and actual 

implementation of the OmiseGO Project”; and 5% for an airdrop to ether token 

holders to “encourage incentive alignment with the Ethereum mainnet.”  Even after 

the ICO, and through changes in management, the promoters of OMG continued to 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 79 of 90



  
 

COMPLAINT 80  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

tout the connected fortunes of OMG token holders and the promoters. 

415. The information publicly disseminated by OMG’s promoters would lead 

a reasonable investor, including those who purchased OMG since October 2019, to 

view OMG as an investment.  Specifically, OMG holders would reasonably expect to 

profit from the promoters’ efforts to grow the OMG Network because this growth 

would in turn increase the demand for and the value of OMG.  

416.  For example, the whitepaper touted the experience of the parent holding 

company (Omise Holdings Pts. Ltd.), the OMG Network team, and advisors that 

would contribute to building a successful blockchain network—the usage of which 

would derive value to the OMG token holders.  The whitepaper stated that “[o]ur 

technical team is led by experienced professionals who have track records in high 

growth technology startups” and that they had the “best setup to implement this 

project” given the parent holding company’s “established track record in building a 

fast-growing fintech startup in the payments and value-transfer landscape.” 

417. Further, materials available at the time of the ICO indicated that the 

development of the platform by the OMG Network team could lead to profits for 

OMG token holders.  For instance, the whitepaper provided that “[a]t the OmiseGo 

Network layer, token holders will be eligible to earn transaction fees for interchange 

payments and decentralized exchange. Activity ‘on-chain’ will pay transaction fees to 

token holders for validating the network.” 

418. Moreover, the OmiseGo website at the time of the ICO indicated that 

OMG token holders could anticipate receiving a share of the fee revenue generated 

on the platform, and a document purporting to establish the terms under which users 

purchased OMG during the ICO clarified that potential for profit was linked to efforts 

of the OMG Network team (“[W]hile the individuals and entities . . . assigned to 

[create the network] will make reasonable efforts to develop and complete OmiseGO, 

it is possible that such development may fail and User’s OMG may become useless 

and/or valueless due to technical, commercial, regulatory or any other reasons”). 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 80 of 90



  
 

COMPLAINT 81  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

419. Even after the OMG Network released a beta version of its platform in 

mid-2020 (which did not exist at the time of the ICO), the OMG Network team 

continued to emphasize their commitment to developing the network.  For instance, 

in or around June 2020 (more than seven months years after OMG was listed on the 

Kraken Trading Platform), the OMG Network team expressed an intended focus on 

future marketing for the platform: “We’ve always followed the mantra that our work 

will speak for itself in the market place and we’ve gone very light on the marketing—

focusing instead on top-notch engineering and solid business development.”  In or 

around October 2020, the OMG Network’s CEO wrote that for the remainder of 2020 

the OMG Network “team remains focused on onboarding our CeFi partners to build 

out the Layer-2 value transfer use-case and improve the protocol and UX” and that 

the “goal is to get OMG Network technology embedded into a network of merchants 

and enterprises, so it becomes the go-to protocol for value transfer.” 

420. Similarly, while the management of the OMG Network continued to 

change hands, the new teams still stated publicly that they would focus on making 

efforts to achieve growth for OMG.  For example, at the time of the acquisition by 

GBV in or around December 2020, the OMG Network stated, “Today, 

@genesisblockhk acquires OMG Network.  We’ll work together to grow our 

ecosystem and accelerate the adoption of OMG Network as the value transfer layer 

for #Ethereum!”  And in November 2021, the new team touted, “OMG was trading 

around $3-4 when the current team took over. Fair to say quite a bit of value has been 

created since then between OMG and BOBA.”  

421. Upon acquisition of the OMG Network in December 2020, GBV 

promised to continue to “promote the accelerated growth of OMG Network, and 

further enhance the adoption of OMG blockchain in Asia and beyond.” 

422. These statements led reasonable OMG investors to expect that the 

demand for OMG would likely increase based on the OMG Network’s efforts to 

increase demand for its technology, thereby potentially resulting in a price increase 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 81 of 90



  
 

COMPLAINT 82  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

for OMG. 

423. Public statements made by Kraken about OMG and the OMG Network 

reinforced investors’ reasonable expectation of profits from an investment in OMG 

due to the managerial efforts of Omise and the OMG Network team. 

424. For example, on its website, Kraken describes for investors OMG's 

history, team, and development, noting the “OMG Network is developed by Omise 

Go Pte Ltd., a subsidiary of Omise, a Thailand-based payments processor founded in 

2013.  Previously known as Omisego, Omise rebranded to OMG Network on June 

1st, 2020.”   

425. Kraken further provides investors with analysis about the price of OMG.  

Specifically, Kraken’s website states: “Should Omise bridge the gap between 

centralized and decentralized financial networks with OMG Network, the OMG 

cryptocurrency could be of interest to long-term traders as well.”  

11. SOL 

426. “SOL” is the native token of the Solana blockchain. The Solana 

blockchain was created by Solana Labs, Inc. (“Solana Labs”), a Delaware corporation 

headquartered in San Francisco that was founded in 2018 by Anatoly Yakovenko 

(“Yakovenko”) and Raj Gokal (Solana Labs’ current CEO and COO, respectively).  

According to Solana’s website, www.solana.com, the Solana blockchain is a network 

upon which decentralized apps (“dApps”) can be built, and is comprised of a platform 

that aims to improve blockchain scalability and achieve high transaction speeds by 

using a combination of consensus mechanisms.  

427. According to Solana’s website, SOL may be “staked” on the Solana 

blockchain to earn rewards, and a certain infinitesimal amount of SOL must be 

“burned” to propose a transaction on the Solana blockchain, a common function for 

native tokens on blockchains that constitutes a method for cryptographically 

distributed ledgers to avoid a potential bad actor from “spamming” a blockchain by 

overwhelming it with an infinite number of proposed transactions.  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 82 of 90



  
 

COMPLAINT 83  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

428. Between May 2018 and early March 2020, Solana Labs filed with the 

SEC multiple forms claiming that its offers and sales of securities—what Solana 

described in those forms as the “sale and issuance of rights to receive Solana Labs, 

Inc. tokens in the future via a [SAFT]”—were exempt from registration under Rule 

506(c) of Regulation D under the Securities Act.  Through these offers and sales of 

securities, Solana sold approximately 177 million SOL, raising over $23 million.  

429. Later in March 2020, Solana Labs conducted additional SOL sales on 

the CoinList trading platform (www.coinlist.co) in a “Dutch auction” (wherein 

investors place bids and the entire offering occurs at the price with the highest 

number of bidders).  During this offering, Solana Labs sold approximately 8 million 

SOL, at an average price of $0.22 per SOL, raising approximately $1.76 million.  In 

August 2021, Solana Labs completed another, purportedly private sale of SOL, 

raising over $314 million from investors, each of whom paid for SOL with fiat 

currency and was required to sign a purchase agreement.  

430. Beginning in February 2020, Solana Labs took steps to make SOL 

available for trading on crypto asset trading platforms.  For example, in a September 

17, 2020, Twitter post, Solana Labs stated: “The Solana community in the United 

States has been eagerly awaiting the chance to trade SOL on a U.S. exchange, and 

now that day has come. SOL/USDT, SOL/USD, and SOL/BTC pairs are all open for 

trading on @ftx_us.”  In another Twitter post later the same day, Solana Labs stated: 

“@BinanceUS announces Support for SOL, making it the Second US Exchange to 

list SOL within one day.”  

431. From the time of its offering and continuing through the Relevant 

Period, SOL was offered and sold as an investment contract and therefore a security. 

432. The price of all SOL tokens goes up or down together. 

433. SOL has been available for buying, selling, and trading on the Kraken 

Trading Platform and through the Kraken Services since approximately June 2021.  

434. The information Solana Labs publicly disseminated would lead a 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 83 of 90



  
 

COMPLAINT 84  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

reasonable investor, including those who purchased SOL since June 2021, to view 

SOL as an investment.   Specifically, SOL holders would reasonably expect to profit 

from Solana Labs’ efforts to grow the Solana protocol because this growth would in 

turn increase the demand for and the value of SOL.  

435. Solana Labs stated publicly that it would pool the proceeds from its 

private and public SOL sales in omnibus crypto asset wallets that it controlled, and 

that it would use those proceeds to fund the development, operations, and marketing 

efforts with respect to the Solana blockchain in order to attract more users to that 

blockchain (potentially increasing the demand for, and therefore the value of, SOL 

itself, given the need for those who wish to interact with the Solana blockchain to 

tender SOL).  For example, in connection with the 2021 private sale of SOL, Solana 

Labs stated publicly that it would use investor funds to: (i) hire engineers and support 

staff to help grow Solana’s developer ecosystem; (ii) “accelerate the deployment of 

market-ready applications focused on onboarding the next billion users into crypto”; 

(iii) “launch an incubation studio to accelerate the development of decentralized 

applications and Platforms building on Solana”; and (iv) develop a “venture investing 

arm” and “trading desk dedicated to the Solana ecosystem.”  

436. As Solana Labs stated publicly, of the 500 million SOL tokens initially 

minted, 12.5% were allocated to Solana Labs’ founders, including Yakovenko and 

Gokal, and another 12.5% were allocated to the Solana Foundation, a non-profit 

organization headquartered in Zug, Switzerland “dedicated to the decentralization, 

growth, and security of the Solana network.”  In fact, on April 8, 2020, Solana Labs 

transferred 167 million SOL tokens to the Solana Foundation, and in its public 

announcement of the Solana Foundation’s formation, Solana Labs stated that “[t]he 

Foundation’s initial focus is expanding and developing the ecosystem of the Solana 

protocol.”  

437. Solana Labs’ two original founders have worked for the Solana 

Foundation. Gokal currently serves as a member of the Solana Foundation Council.  

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 84 of 90



  
 

COMPLAINT 85  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

And Yakovenko was a member and President of the Solana Foundation Council from 

its founding until December 2021, when he stepped down to focus on his work at 

Solana Labs.  

438. In public statements on its website and social media pages, including 

statements made and available during the period when SOL was available to trade on 

the Kraken Trading Platform and through the Kraken Services, Solana specified its 

expertise in developing blockchain networks and described the efforts Solana and its 

founders had made and would continue to make to develop the Solana blockchain 

protocol and attract users to the technology, which, again, required those utilizing the 

technology to demand some amount of SOL.  

439. Solana Labs undertook other promotional efforts to increase 

participation in its network and thus demand for SOL, including with: (a) a Solana 

podcast of which there have been at least 90 episodes since July 2019, with 

interviews of key Solana Labs management and other key personnel, including 

Yakovenko; (b) a YouTube channel with over 37,000 subscribers; and (c) dedicated 

Telegram, Twitter, Reddit, Solana Forums, Discord, GitHub, Meetup, and Weibo 

channels, with links to each available on Solana’s website.  

440. These promotional statements that Solana Labs made in these fora with 

respect to SOL and Solana Labs’ efforts to increase demand and value for SOL 

included, for example:  

• A July 28, 2019 post on Solana Labs’ Medium blog in which Yakovenko 
stated that “Solana … supports upwards of 50,000 TPS” (transactions 

per second) “making it the most performant blockchain and the world’s 

first web-scale decentralized network” and that the “Solana team—

comprised of pioneering technologists from [several high-profile 

technology companies]—has focused on building the tech required for 

Solana to function with these groundbreaking performance standards”;  

• Solana’s website statement that “Solana is engineered for widespread, 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 85 of 90



  
 

COMPLAINT 86  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

mainstream use by being energy efficient, lightning fast, and extremely 

inexpensive” and that “[m]any of the core Solana builders, like co-

founder Anatoly Yakovenko, have a background in building cell phone 

networks,” which “means that they are singularly focused on building 

for scalability (the ability to grow) and efficiency (the ability to get the 

most information across with the least amount of resources)”; 

• An April 14, 2021 post on gemini.com in which Yakovenko touted the 
Solana network’s ability to “support a theoretical peak capacity of 

65,000 transactions per second, currently” (“around 10,000 times faster 

than Bitcoin, 4,000 times faster than Ethereum, and 35 times faster than 

Ripple—even around 2.5 times faster than Visa”) and projecting that 

such speed would “doubl[e] in capacity every two years with 

improvements in hardware and bandwidth”; and  

• A December 23, 2022 post on Solana’s website marketing various 
“upgrades” that Solana and its engineers would undertake, including 

“turbine optimizations” introduced by the “core engineering team,” 

which Yakovenko described as the “coolest piece of technology that we 

built that nobody knows about.”  

441. Further, Solana Labs markets that it “burns” (or destroys) SOL tokens as 

part of a “deflationary model.”  As Yakovenko explained in an April 14, 2021 article 

entitled “Solana (SOL): Scaling Crypto to the Masses” posted on gemini.com, 

“Solana transaction fees are paid in SOL and burnt (or permanently destroyed) as a 

deflationary mechanism to reduce the total supply and thereby maintain a healthy 

SOL price.”  As explained on the Solana website, since the Solana network was 

launched, the “Total Current Supply” of SOL “has been reduced by the burning of 

transaction fees and a planned token reduction event.”  This marketed burning of 

SOL as part of the Solana network’s “deflationary mechanism” has led investors 

reasonably to view their purchase of SOL as having the potential for profit to the 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 86 of 90



  
 

COMPLAINT 87  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

extent there is a built-in mechanism to decrease the supply and therefore increase the 

price of SOL.  

442. Public statements made by Kraken about SOL and the Solana Protocol 

reinforced investors’ reasonable expectation of profits from an investment in SOL 

due to the managerial efforts of Solana Labs. 

443. For example, on its website, Kraken describes for investors SOL’s 

history, team, and development.  Further, Kraken provides investors with analysis 

about the price of SOL.  Specifically, Kraken’s website states: “Solana’s 

comparatively large market cap demonstrates the wider crypto community’s belief in 

the future of the Solana ecosystem.”   

444. Kraken went on to explain: “Crypto market participants that see a long-

term prospect in the Solana blockchain may choose to dollar cost average (DCA) in 

SOL tokens.  For those not interested in timing the market or finding the perfect time 

to buy, dollar cost averaging may be the most effective strategy for accumulating 

SOL.” 

445. Further, Kraken stated on its site: “By setting up a recurring buy of SOL, 

you can accumulate SOL regularly over time.  Those that believe in the potential of 

the Solana blockchain over the long term may choose to simply set up a recurring buy 

of SOL tokens on a regular basis rather than making a large, one-time purchase of 

SOL all at once.” 

FIRST CLAIM FOR RELIEF 

Violations of Exchange Act Section 5 

(Payward and Payward Ventures) 

446. The Commission realleges and incorporates by reference here the 

allegations in paragraphs 1 through 445. 

447. By engaging in the acts and conduct described in this Complaint, 

Payward and Payward Ventures, directly or indirectly, made and continues to make 

use of the mails and the means and instrumentalities of interstate commerce for the 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 87 of 90



  
 

COMPLAINT 88  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

purpose of using any facility of trading platforms that constitute exchanges within or 

subject to the jurisdiction of the United States, in order to effect transactions in a 

security, or to report any such transaction, without registering as national securities 

exchange under Exchange Act Section 6 [15 U.S.C. § 78f], and without being 

exempted from such registration. 

448. By reason of the conduct described above, each of Payward and 

Payward Ventures, directly or indirectly, violated, are violating, and, unless enjoined, 

will continue to violate Exchange Act Section 5 [15 U.S.C. § 78e]. 

SECOND CLAIM FOR RELIEF 

Violations of Exchange Act Section 15(a) 

(Payward and Payward Ventures) 

449. The Commission realleges and incorporates by reference here the 

allegations in paragraphs 1 through 445. 

450. By engaging in the acts and conduct described in this Complaint, 

Payward and Payward Ventures, persons other than a natural person under the 

Exchange Act, are each a broker and dealer and each made and continues to make use 

of the mails and the means and instrumentalities of interstate commerce to effect 

transactions in, or to induce or attempt to induce the purchase or sale of, securities, 

without registering as a broker or dealer in accordance with Exchange Act Section 15 

[15 U.S.C. § 78o], and without being exempted from such registration. 

451. By reason of the conduct described above, each of Payward and 

Payward Ventures, directly or indirectly, violated, is violating, and, unless enjoined, 

will continue to violate Exchange Act Section 15(a) [15 U.S.C. § 78o(a)]. 

THIRD CLAIM FOR RELIEF 

Violations of Exchange Act Section 17A 

(Payward and Payward Ventures) 

452. The Commission realleges and incorporates by reference here the 

allegations in paragraphs 1 through 445. 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 88 of 90



  
 

COMPLAINT 89  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

453. By engaging in the acts and conduct described in this Complaint, 

Payward and Payward Ventures, directly or indirectly, each made and continues to 

make use of the mails and the means and instrumentalities of interstate commerce to 

perform the functions of a clearing agency with respect to securities, without 

registering in accordance to Section 17A(b) [15 U.S.C. § 78q-1(b)] of the Exchange 

Act and without being exempted from registration. 

454. By reason of the conduct described above, each of Payward and 

Payward Ventures, directly or indirectly, violated, is violating, and, unless enjoined, 

will continue to violate Exchange Act Section 17A [15 U.S.C. § 78q-1]. 

 

PRAYER FOR RELIEF 

WHEREFORE, the SEC respectfully requests that the Court: 

I. 

Issue findings of fact and conclusions of law that Defendants committed the 

alleged violations. 

II. 

Issue judgments, in forms consistent with Rule 65(d) of the Federal Rules of 

Civil Procedure, permanently enjoining Defendants, and their officers, agents, 

servants, employees, and attorneys, and those persons in active concert or 

participation with any of them, who receive actual notice of the judgment by personal 

service or otherwise, and each of them, from violating, directly or indirectly, Sections 

5, 15(a), or 17A of the Exchange Act [15 U.S.C. §§ 78e, 78o(a), 78q-1(b)]. 

III. 

Prohibiting, pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 

78u(d)(5)], Defendants and their officers, agents, servants, employees, and attorneys, 

and those persons in active concert or participation with any of them, who receive 

actual notice of the judgment by personal service or otherwise, and each of them, 

from using means or instrumentalities of interstate commerce to: (i) act as an 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 89 of 90



  
 

COMPLAINT 90  

 
 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 

unregistered exchange with respect to any securities, including any crypto asset 

securities; (ii) act as unregistered broker or dealer with respect to any securities, 

including any crypto asset securities; or (iii) act as an unregistered clearing agency 

with respect to any securities, including any crypto asset securities.  

IV. 

Order Defendants to disgorge all ill-gotten gains, together with prejudgment 

interest thereon. 

V. 

Order Defendants to pay civil penalties under Section 21(d)(3) of the Exchange 

Act [15 U.S.C. § 78u(d)(3)]. 

VI. 

Retain jurisdiction of this action in accordance with the principles of equity and 

the Federal Rules of Civil Procedure in order to implement and carry out the terms of 

all orders and decrees that may be entered, or to entertain any suitable application or 

motion for additional relief within the jurisdiction of this Court. 

VII. 

Grant such other and further relief as this Court may determine to be just and 

necessary.  
 

Dated:  November 20, 2023  
   /s/ Daniel Blau 

Daniel Blau  
Alec Johnson  
Peter Moores  
Elizabeth Goody 
Attorneys for Plaintiff 
Securities and Exchange Commission 

Case 3:23-cv-06003   Document 1   Filed 11/20/23   Page 90 of 90


	I. SUMMARY
	II. JURISDICTION AND VENUE
	III. DIVISIONAL ASSIGNMENT
	IV. DEFENDANTS
	V. BACKGROUND
	A. Statutory and Legal Framework Regarding the Scope of U.S. Securities Regulations
	B. Crypto Assets and Crypto Trading Platforms
	1. Crypto Assets
	2. Consensus Mechanisms and Validation of Transactions on a Blockchain
	3. The Offer and Sale of Crypto Assets
	4. Crypto Asset Trading Platforms

	C. The SEC’s “DAO Report”

	VI. FACTUAL ALLEGATIONS
	A. Kraken’s Operations
	B. Many of the Crypto Assets Available Through Kraken Are Securities
	C. Kraken Was Required to Register with the Commission
	1. Kraken Failed to Register as a National Securities Exchange
	a. Registration of Exchanges
	b. Kraken Operates an Unregistered Securities Exchange
	i. Customer Applications, Order Entry, and Display
	ii. Order Types
	iii. Fees
	iv. Order Matching
	v. Direct Sales


	2. Kraken Failed to Register as a Broker-Dealer
	a. Registration of Broker-Dealers
	b. Kraken Functions as a Broker
	i. Kraken Views Itself as a Broker and Solicits Customers for Trading Crypto Asset Securities
	ii. Kraken Controls Customer Assets
	iii. Kraken Offers Trading on Margin

	c. Kraken Functions as a Dealer
	i. Instant Buy
	ii. OTC Desk
	iii. Proprietary Trading


	3. Kraken Failed to Register as a Clearing Agency
	a. Registration of Clearing Agencies
	b. Kraken Functions as a Clearing Agency


	D. Kraken’s Business Practices Create Heightened Risks for its Customers
	1. Kraken Fails to Separate the Competing Functions of Its Business
	2. Kraken Commingles Its Customers’ Crypto Assets and Fiat with Its Own
	3. Kraken’s Internal Control Failures

	E. Crypto Assets Securities Available Through Kraken
	1. ADA

	(a) an “ask me anything” video stream posted by Charles Hoskinson at IOHK in or about October 2018 in which he answered questions posed by the live public audience and in which he stated that he believes ADA will achieve his goal of a future market ca...
	(b) a blog post by Charles Hoskinson at IOHK in or around January 2020 about how the decade from 2020 to 2029 will be the decade of Cardano and which stated, “[a]s we exit 2020 and throughout the next decade, incentives will be a source of continuous ...
	(c) an announcement by IOHK in or around September 2021 about the creation of smart contracts on the protocol, which supposedly would “pav[e] the way” for additional demand for the blockchain protocol;
	(d) a blog post by IOHK in or around November 2022 describing its efforts to introduce “innovations, new functionality, and new features” to the blockchain; and
	(e) a blog post by IOHK on or around November 17, 2022, touting ADA being “hosted on more than 30 cryptocurrency exchanges,” and outlining IOHK’s plans to “improv[e] the underlying performance of the Cardano network to better support growth and adopti...
	2. ALGO
	3. ATOM

	(a) Cosmos’s website stated that “Cosmos is supported by the Interchain Foundation” and identifies Tendermint, Interchain GmbH, and 15 other “Cosmos core development teams.”
	(b) The ICF website stated that it “funds, stewards, and responsibly advances the Cosmos ecosystem” and that its “core teams maintain the protocols and applications” in the “Cosmos tech stack” (including Cosmos Hub and Cosmos SDK).  Further, the site ...
	(c) The “Projects Funded in 2018” post on the ICF’s GitHub page (posted in 2019) identified grants, service agreements, and investments to develop the Cosmos network in 2018.
	(d) The ICF website has touted the “Builders Program,” which “provides mentorship, structured support and access to a wide network of partners” and “is led by a team experienced in building the ecosystem’s software and infrastructure.”  The site has s...
	4. FIL

	(a) 70% to Filecoin Miners – “For providing data storage service, maintaining the blockchain, distributing data, running contracts, and more.”
	(b) 15% to Protocol Labs – “For research, engineering, deployment, business development, marketing, distribution, and more.”
	(c) 10% to investors – “For funding network development, business development, partnerships, support, and more.”
	(d) 5% to Filecoin Foundation – “For long-term network governance, partner support, academic grants, public works, community building, etc.”
	5. FLOW
	6. ICP
	7. MANA
	8. MATIC
	9. NEAR
	10. OMG
	11. SOL