Kraken secures $22M award as Arjun Sethi slams ‘Operation Chokepoint 2.0’ and calls for crypto law reform
Kraken has won a $22 million arbitration award against its former auditor Mazars USA, a decision the exchange’s co-CEO Arjun Sethi is framing as part of a much broader battle over how U.S. institutions treat the digital asset industry. In a public letter, Sethi argued that the collapsed audit relationship was not a routine business dispute but a symptom of what he calls “Operation Chokepoint 2.0” – a wave of informal pressure on banks, auditors, and service providers to walk away from lawful crypto companies.
According to Sethi, Kraken’s parent company Payward has now asked the Delaware Court of Chancery to formally enter judgment on the arbitration ruling, cementing the $22 million award against Mazars. The case arose from Mazars’ decision to abruptly pull out of Kraken’s nearly completed 2022 audit, a move Sethi says caused tangible financial harm to the exchange and impaired its ability to access core financial infrastructure.
Sethi stressed that Mazars did not uncover fraud, did not flag issues with Kraken’s management, and did not report any disagreements with the company over accounting or disclosure. Despite this clean bill of health, Mazars still terminated the engagement. That, Sethi argued, left Kraken without a completed independent audit at a critical moment and directly interfered with the exchange’s ability to maintain or expand banking relationships, navigate licensing processes, and secure other vital services that rely on audited financials.
In his letter, Sethi described audits as “critical infrastructure” for any serious financial institution. He went further, saying that for law-abiding crypto businesses, an audit is “not a favor. It is oxygen.” From his perspective, cutting crypto firms off from auditors and banks is essentially a way to suffocate companies that otherwise comply with the law.
Sethi linked Mazars’ withdrawal to a broader pattern of regulatory and supervisory pressure that many in the industry describe as Operation Chokepoint 2.0. The term refers to what critics say is an unofficial yet coordinated effort by U.S. regulators and bank supervisors to push financial institutions and professional service firms to distance themselves from digital asset businesses, not through formal bans but through guidance, risk memos, and back-channel pressure.
To back up this claim, Sethi pointed to regulatory actions and policy shifts in 2023. These included joint statements from U.S. banking watchdogs warning about risks tied to crypto activities, the Securities and Exchange Commission’s now-withdrawn Staff Accounting Bulletin No. 121 – which would have made it more punitive for banks to custody digital assets – and the collapse of crypto-focused payment networks such as Silvergate’s SEN and Signature Bank’s Signet system. In his view, these moves collectively made it far more difficult for legitimate crypto actors to maintain ordinary banking and audit relationships.
Sethi also used the moment to push for legislative action. He urged lawmakers to pass the CLARITY Act and to introduce a dedicated market structure framework for digital assets. Rather than governing crypto primarily through enforcement and ad hoc guidance, he argued that the industry needs clear statutory rules that define what is permitted, what is restricted, and how companies can operate without living in fear of shifting interpretations.
Kraken’s other co-CEO, Dave Ripley, echoed that message in his own comments, saying that the arbitration victory addresses only one piece of what the company experienced during that period. He framed the $22 million award as partial compensation for what he described as coordinated financial harm inflicted on Kraken and other crypto firms as part of an effort to cut them off from banks, auditors, and key service providers.
While the company pushes for accountability in court, U.S. regulators themselves are revisiting some of the supervisory tools that critics say enabled Operation Chokepoint-style practices. Earlier this year, the Federal Reserve sought public input on a proposal to remove “reputation risk” as a stand‑alone factor in bank supervision. This comes after prior instructions that examiners should not pressure institutions to drop lawful clients purely due to reputational concerns. Opponents of the older framework argued that vague references to reputation risk had been used to justify quietly de‑risking entire sectors, including crypto, without public rulemaking or due process.
Despite the legal and regulatory headwinds, Kraken has continued to expand its product lineup and deepen its institutional offering. Recently, the exchange rolled out the ability for eligible non‑U.S. users to post certain tokenized stocks and exchange-traded funds as collateral for margin and futures trading on Kraken Pro. This allows traders to maintain exposure to tokenized equity-like assets while simultaneously using them to back leveraged positions in digital assets.
The initial rollout covers 10 so‑called xStocks, including tokenized representations of benchmark ETFs and major equities such as SPYx, QQQx, AAPLx, GOOGLx, TSLAx, NVDAx, HOODx, MSTRx, GLDx and CRCLx. By enabling these instruments to serve as collateral, Kraken is positioning itself closer to a multi‑asset trading venue, where users can manage both tokenized traditional instruments and cryptocurrencies under a single risk and collateral framework.
This collateral initiative comes on the heels of several other institutional-focused launches. In May, Kraken’s parent Payward partnered with a major asset manager to bring tokenized money market products onto the platform for use in collateral and cash management strategies. Shortly afterward, Kraken worked with Maple to build an institutional crypto lending structure that uses a bankruptcy‑remote vehicle, aiming to reduce counterparty risk for lenders while maintaining access to credit for sophisticated borrowers.
Founded in 2011, Kraken is one of the longest‑running global crypto exchanges and has been quietly preparing for a public market debut. The company confirmed in November 2025 that it had confidentially submitted a draft Form S‑1 registration statement to the U.S. Securities and Exchange Commission, a necessary step for an eventual initial public offering.
However, subsequent reporting in 2026 suggested that Kraken’s IPO timeline may be pushed back to 2027. Softer overall crypto market conditions, heightened regulatory uncertainty, and a stronger internal emphasis on cost discipline and operational resilience have all been cited as reasons for a more cautious approach to going public. For now, Kraken appears focused on strengthening its balance sheet, expanding products with clear demand, and navigating regulatory battles before exposing itself to the added scrutiny and short‑term pressures of public markets.
The dispute with Mazars and the broader Operation Chokepoint 2.0 narrative come at a pivotal time for the digital asset sector. On one hand, large institutions increasingly explore tokenization, on‑chain collateral, and crypto market making. On the other, the basic ability of crypto firms to maintain banking, auditing, and payments infrastructure has periodically come under strain. Kraken’s arbitration win underscores a willingness by some players to push back through legal channels rather than quietly accept service denials as a cost of doing business.
For crypto companies, the Kraken-Mazars episode highlights the strategic importance of diversifying critical service providers and building redundancy into core functions like banking, auditing, and custody. Relying on a single auditor or a narrow set of banks can magnify the impact of any policy shift or risk re‑assessment. Many firms are now pursuing multi‑jurisdictional strategies, maintaining relationships with global audit networks and banks in several regulatory regimes to reduce their exposure to any one country’s stance.
The case also raises a deeper question for regulators: how to balance legitimate concerns about consumer protection, financial stability, and illicit finance with the need to preserve basic rule-of-law principles. Sethi’s framing – that America’s competitive edge rests not only on capital and technology, but on predictable legal processes and institutions that prioritize evidence over narratives – reflects a growing fear in the industry that informal pressure campaigns can achieve de facto bans without public debate.
For policymakers, one possible path forward lies in creating transparent, asset‑class‑specific frameworks rather than trying to fit digital assets into legacy categories designed decades ago. Clear definitions of what constitutes a security, a commodity, or a payment instrument in the context of tokens, combined with proportionate licensing and disclosure rules, could reduce the incentive for regulators and banks to rely on ambiguous “reputation risk” arguments.
From an investor’s perspective, Kraken’s trajectory illustrates both the resilience and the fragility of major crypto platforms. The exchange has managed to expand its institutional footprint, experiment with tokenized real‑world assets as collateral, and advance toward a potential IPO, even while contesting serious structural barriers in its home market. Yet the fact that a completed audit could be derailed at the final stages due to external pressures shows how dependent the industry still is on the willingness of traditional gatekeepers to work with it.
In the coming years, the outcome of Kraken’s push for judgment in Delaware, the fate of legislation like the CLARITY Act, and the final shape of banking supervision rules around crypto will play a major role in determining whether Operation Chokepoint 2.0 remains a rallying cry or fades into history. For now, the $22 million arbitration award is both a financial victory for Kraken and a symbolic moment in the ongoing struggle over who gets access to the core plumbing of the modern financial system.