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The Securities and Exchange Commission (SEC) has conducted an investigation into how cryptocurrency exchanges operate to prevent insider trading.
SEC investigating insider trading
As reported by FOX Business June 15, a person with direct knowledge of the SEC's activities said that the commission sent a letter to a major cryptocurrency exchange asking for information on how the platform protects users from insider trading. The source suggested that the same letter had been sent to many other exchanges.
SEC launches insider trading inquiry into crypto exchanges https://t.co/8YeYuOvaF0
— FOX Business (@FoxBusiness) June 14, 2022
There was no official word on which exchanges had received the request, but Coinbase, Binance, FTX and Crypto.com all declined to comment. The SEC also declined to confirm the investigation.
The purpose of the investigation has not been clearly stated. The SEC may be seeking evidence of violations of an exchange's laws through its enforcement department. It could also be a period compliance test through the Office of Verification and Compliance Testing.
Allegations of insider trading in the world's largest NFT market OpenSea have caught the attention of the SEC. On June 3, the commission finally charged NFTs as securities following insider trading allegations against former OpenSea product manager Nathanial Chastain.
SEC has jurisdiction over canceled cryptocurrency exchanges
Jeremy Hogan, a partner at law firm Hogan & Hogan, told FOX Business that the SEC's investigation into the exchanges could stem from allegations of insider trading of tokens that were scheduled to be listed and potentially raise prices. Hogan said "it's the kind of transaction the SEC might be foreshadowing about the exchange they need to have control over."
The proposed Digital Goods Exchange Act of 2022 gives the SEC jurisdiction over canceled cryptocurrency exchanges. If passed, the bill would empower the Commodity Futures Trading Commission (CFTC) to cryptocurrency exchanges and stablecoin providers.
Current market conditions and cryptocurrency scandals have prompted the SEC's decision to conduct an investigation. In early May, the Terra ecosystem collapsed, after the terra dollar-dependent stablecoin and luna cryptocurrency dropped 99.9% in value.
More recently, decentralized financial lending and deposit platform Celsius suspended transfers, swaps and withdrawals after transferring $320 million of cryptocurrencies to the FTX exchange, facing the risk of a liquidity crisis.
The total cryptocurrency Market Capitalization has fallen below $1 trillion for the first time since February 2021. According to CoinGecko, this figure is now down 1.1% in the last 24 hours to $977 billion.
