SEC source: Crypto exchanges to face insider trading inquiry

• Updated

Probe comes after SEC chair Gary Gensler accuses exchanges of betting against customers

A smartphone displays the US Securities and Exchange Commission (SEC) seal                                 
The US Securities and Exchange Commission (SEC) seal is seen displayed on a smartphone screen – Photo: Getty Images
                                

The US Securities and Exchange Commission (SEC) has launched an inquiry into examining if crypto exchanges have proper safeguards to prevent insider trading.   

This is according to what a source with direct knowledge of the inquiry has told FOX Business. The source added that the SEC has sent a letter to one major crypto exchange requesting information about how the platform protects users from insider trading – and it is believed that the letter has been sent to other crypto exchanges as well.

It is not known which major crypto exchange received the SEC letter. Binance and Coinbase declined to comment to FOX Business, while Crypto.com and FTX did not respond. Additionally, the SEC declined to comment to FOX Business on the matter.

Unknown who is leading the inquiry

It is also not clear if the inquiry is being led by the SEC’s enforcement division or the Office of Compliance Inspections and Examinations. According to FOX Business, if the enforcement division is leading the inquiry it would show that the SEC is worried about potential serious regulatory violations.

Jeremy Hogan, partner at Hogan & Hogan law firm, said: “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.

“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, and it’s that sort of trading that the SEC might be forewarning the exchange they need to get control of.”

SEC chair takes shots at crypto exchanges

In May, Gary Gensler, chair of the SEC, told Bloomberg that some crypto exchanges are not adhering to the rules and could be betting against their own customers.

Gensler explained that he is concerned that certain crypto exchanges are not putting up proper walls between different parts of the business such as custody, market-making and offering a trading venue. Gensler felt the “commingling” of these services may not be in clients’ best interests.

“Crypto’s got a lot of those challenges – of platforms trading ahead of their customers. In fact, they’re trading against their customers often because they’re market-marking against their customers,” added Gensler.

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