Bitcoin Exchange Kraken Sued by Former Trading Desk Manager

A former employee of Kraken, one of the oldest Bitcoin exchanges, is suing the crypto platform for allegedly failing to pay him for work he did.

Jonathan Silverman, who was hired in April 2017 to manage Kraken’s institutional sales and trading desk in New York, is demanding compensation in excess of $900,000, according to a suit filed April 4 in New York. That’s based on an agreement Silverman says he reached with Jesse Powell, the San Francisco-based exchange’s founder, who offered him a $150,000 salary and orally agreed to pay him a 10 percent commission of the trading desk’s annual profit. Silverman says the trading desk generated more than $19 million in profits during three months in 2017 and he never received neither the commission nor additional promised stock options.

Kraken Bitcoin Exchange Chief Executive Officer Jesse Powell
Jesse PowellPhotographer: David Paul Morris/Bloomberg
Silverman “is both lying and in breach of his confidentiality agreement,” said Christina Vee, a spokeswoman for Kraken.

Powell is known in the cryptocurrency world for his outspoken views on what rules should apply to the trading of digital assets. Last year Powell responded to a request by the New York Attorney General for information about his exchange by saying, in part, that "most crypto traders" aren’t concerned about "being protected from market manipulation" even though “scams are rampant.” Kraken is one of the exchanges that sets prices for CME Group Inc.’s Bitcoin futures contract. Powell has said that Kraken doesn’t have to adhere to New York rules because the firm hasn’t operated in the state for years.

In an April 2018 tweet, Powell said, “We made the wise decision to get the hell out of New York three years ago.” Kraken announced in a 2015 blog post that it discontinued its New York services, citing onerous requirements from the state’s BitLicense, a regulatory framework required by the Department of Financial Services for virtual currency businesses. “Regrettably, the abominable BitLicense has awakened. It is a creature so foul, so cruel that not even Kraken possesses the courage or strength to face its nasty, big, pointy teeth,” the company wrote in the post titled “Farewell, New York.”

Those assertions are challenged in the Silverman lawsuit. Kraken had been “misrepresenting to the public and government regulators that it was not operating in New York; when in reality, Kraken’s OTC practice, and OTC trading (including logging into the Kraken exchange and negotiating wire transfers) occurred almost exclusively in New York,” the filing reads.

“Just because some people in the cryptocurrency space don’t believe the rules apply to them doesn’t mean that’s the way things actually work,” David Silver, one of the attorneys representing Silverman, said in an emailed statement.

Kraken’s New York trading desk is believed to have made the company profit of $19 million between Sept. 15 and year-end 2017, according to a separate suit brought against the company by former employee Robert Adler. After Silverman left the company, he reached an agreement with Kraken that would pay him $907,631 as a lump sum settlement. The lawsuit alleges Kraken “refused” to pay it out despite the agreement.

Silverman was one of at least two employed at Kraken’s New York trading office.

It’s much more common for crypto exchanges to employ internal trading desks that buy and sell on their own market than in the traditional financial world. A New York Attorney General report on crypto exchanges released last year listed several markets, such as Bitfinex, bitFlyer and Poloniex, that reported they allowed the practices on their exchanges.

"That’s the dirty little secret of the crypto exchange world," said Richard Johnson, an analyst at Greenwich Associates who specializes in blockchain technology, referring to internal trading desks.