SEC launches probe into insider trading in exchanges

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The United States Securities and Exchange Commission (SEC) has reportedly launched an investigation into whether crypto exchanges are doing enough to prevent insider trading. The commission could be conducting routine checks on the exchange in question, or it could be looking for specific compliance violations to prosecute.

According to a person with direct knowledge of the inquiry, the regulator sent a letter to an unnamed major crypto exchange requesting information on how the company protects users from insider trading facilitated through its platform. According to the source, the investigation includes a number of other exchanges. The letter was sent following the collapse of Terra's UST stablecoin and the associated LUNA token last month.

It is unclear which exchange or exchanges received the letter. Coinbase, Binance, FTX, and Crypto.com have declined to have received the letter. The SEC also declined to confirm the investigation. SEC chair Gary Gensler has previously expressed concerns about crypto exchanges providing multiple services such as market-making, custody, and a trading venue, which can lead to conflicts of interest.

"Crypto’s got a lot of those challenges—of platforms trading ahead of their customers,” he said in an interview last month. “In fact, they’re trading against their customers often because they’re market-marking against their customers," he was quoted saying.

Further, it is not yet confirmed whether the investigation will be led by the SEC's enforcement division or the Division of Examinations. An enforcement division investigation would indicate that the regulator is concerned about potentially serious regulatory violations.