The US Securities and Exchange Commission (SEC) has reportedly launched a string of inquiries into the activities of numerous crypto exchanges, striving to determine whether the businesses have adequate safeguards in place to prevent insider trading.
A “person with direct knowledge of the inquiry” told Fox News that the regulator has sent a letter to an unnamed major crypto exchange in which it requested information about how the company protects users from insider trading facilitated through its platform. The source claimed that the inquiry covers a number of other exchanges, per the report.
While it remains unclear for now whether similar letters have been issued to other major players, the person reportedly said that, based on their conversation with industry insiders, the probe is wide-ranging.
It is yet to be determined whether the investigation is spearheaded by the SEC’s enforcement division or the Division of Examinations. An inquiry by the enforcement division would indicate the regulator is concerned over potentially serious regulatory violations.
“A request for more information from the SEC to crypto exchanges would make sense given the SEC’s recent emphasis on regulating the exchanges, ostensibly in the name of consumer protection,” Jeremy Hogan, Partner at US law firm Hogan & Hogan, was quoted as saying.
According to him, in the past, there have been allegations of insiders buying large amounts of tokens that were going to be listed on an exchange (thereby increasing the price) but which listing was not yet public knowledge.
Meanwhile, industry observers say that Gary Gensler, Chair of the SEC, could be looking for a reason to begin applying insider trading rules to the crypto industry. Gensler has called on crypto exchanges to voluntarily register with the regulator in order to avoid being punished for selling unregistered security tokens, even though the existing regulations make it burdensome to identify which tokens constitute securities.