U.S. Financial Watchdog Securities and Exchange Commission, SEC has initiated an inquiry after reports emerged of insider trading in certain crypto exchanges.
According to a source familiar with the inquiry, the regulator has shot out a letter to one major crypto exchange requesting information about how the platform safeguards users from insider trading facilitated through its network.
The inquiry would extend to other exchanges as well, the source added.
After the meltdown of stablecoin UST and its sister token LUNA in May, SEC Chairman Gary Gensler has accused crypto exchanges, of trading against their clients.
In an interview with Bloomberg, Gensler said he’s concerned crypto exchanges aren’t putting up mandatory division between different parts of their businesses [i.e. market-making and trading services] like traditional exchanges are required to.
In the last few weeks, the crypto market has been in a downturn; the price of Bitcoin — the most popular digital coin has shed nearly a third of its value in the past week and is down 70% from its November all-time high.
The overall value of the crypto market has retraced below $1 Trillion.
Since the turmoil, the SEC has sped up its oversight of whether crypto insiders have sold coins and tokens before the tumult and exploited the information to their advantage to trade through the declines and profit.
SEC May Not Wait For Court Precedent
But the SEC under Gensler may not be waiting for court precedent to start applying insider trading rules to crypto. Several recent media accounts have detailed anonymous crypto insiders buying and selling their digital coins before market-moving announcements.
A week ago, the US regulator has started its inquiry of the world’s largest crypto exchange Binance to examine if its 2017 initial coin offering [ICO] for its BNB token is in violation of the securities rules that require prior registration with the agency.
Besides BNB, the agency is also probing possible trading abuses by the firm’s insiders and also investigating its American affiliate- Binance.US, formed in 2019.
Anonymous sources further revealed the SEC is also monitoring market-making entities linked to the founder Changpeng Zhao, commonly known as “CZ”.