SEC launches, crypto exchange SEC launches probe into insider trading in Crypto Exchanges


The US securities market regulator has launched an investigation to determine if cryptocurrency exchanges were doing enough to control insider trading on their platforms, according to the Fox Business report.


The U.S. Securities and Exchange Commission (SEC) has sent an official communication to at least one cryptocurrency exchange seeking evidence on the processes it followed to protect users from malpractices such as insider trading, said the report, citing an unnamed source with knowledge of the probe.


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The SEC’s decision to probe into cryptocurrency exchanges follows the collapse of the Terra LUNA token, in which investors lost around $40 billion when its peg to the US dollar was severed. It was one of the losses in a cryptocurrency crash that lowered the value of the global cryptocurrency market to less than $900 billion this month from an all-time high of $3.1 trillion in November 2021.


More recently, the decentralized finance (DeFi) staking and lending platform Celsius has come under fire for freezing user withdrawals as rumours swirl around its potential insolvency amid huge transfers of cryptocurrency into the FTX exchange.


The SEC is also looking into whether Terraform Labs, the company behind UST and LUNA, violated laws in its marketing of cryptocurrencies.


The DRC investigation into Cryptocurrency Exchanges is described as “wide-ranging.” It is unclear if other cryptocurrency exchanges had received any communication from the market regulator.



SEC chair Gary Gensler, in a speech at an industry event last Tuesday, warned investors against schemes offered by lending platforms that seemed too good to be true.


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Gensler said "We've seen again that lending platforms are operating a little like banks. They're saying to investors 'Give us your crypto. We'll give you a big 7% or 4.5% return.' How does somebody offer (such returns) in the market today and not give a lot of disclosure”?


He added: “I caution the public. If it seems too good to be true, it just may well be too good to be true.”


The SEC could be seeking out leads to litigate against an exchange’s potential legal violations via the enforcement division, or it could be a recurring compliance check through the Office of Compliance Inspection and Examinations.


Allegations of insider trading at one of the largest Nonfungible Token (NFT) marketplace, OpenSea, caught the attention of the SEC. According to a report, the commission could label NFTs as securities after charges of insider trading OpenSea’s officials.


The proposed Digital Commodity Exchange Act of 2022 would see the SEC have jurisdiction over cryptocurrency exchanges rescinded. If it passes, the bill will allow the Commodity Futures Trading Commission (CFTC) to be the regulatory body of the Cryptocurrency Exchanges and stablecoin providers.


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