SEC investigates crypto exchanges for use of privileged information

The United States Securities and Exchange Commission, the SEC, has launched a wide-ranging investigation to find out whether digital asset exchanges have adequate safeguards to prevent insider trading on their platforms.

SEC investigates crypto exchanges after Terra, LUNA and UST case

As FOX Business learned, a person with direct knowledge of the investigation reported that the SEC sent a letter to a major cryptocurrency exchange – which was not named – about the matter.

More precisely, the regulator wanted to know how the platform protects users from privileged information. The source also said that he believes the consultation has also covered other digital asset brokers.

According to the source, the SEC sent the letter after the collapse of the Terra network (LUNA) and stablecoin UST.

In early May, the supposedly stable digital currency TerraUSD lost its 1:1 peg to the dollar.

As a result, cryptocurrency LUNA, which supported UST, saw its price drop to zero. This caused mass liquidations, erasing an estimated $40 billion from investor funds.

After that, the company behind the network “rebooted” Terra with a hard fork, creating a new Earth and a new LUNA.

Still according to the source, it is not clear if other letters were issued. However, it is known that the investigation in question is extensive.

FOX contacted the SEC, which declined to comment. Advisors for exchanges Binance and Coinbase also declined to comment. FTX and Crypto.com did not respond to requests for comment.

FOX also said it was unable to determine whether the investigation is being conducted by the SEC’s enforcement division or the Office of Compliance Inspections and Examinations.

“An investigation by the enforcement division would signal that the SEC is concerned about potentially serious regulatory violations,” FOX said.

SEC eyeing exchanges

Prior to that, in an interview with Bloomberg, SEC Chairman Gary Gensler expressed concerns about digital asset exchanges that offer various services. According to him, this multiple offer causes conflicts of interest.

“Crypto has a lot of these challenges. In fact, they [as exchanges] are trading against their customers often because they are marking the market against their customers,” Gensler said.

According to Jeremy Hogan, a partner at law firm Hogan & Hogan, a request for more information from the SEC to exchanges would make sense. After all, the SEC has been in favor of regulating exchanges:

“There have been allegations of insiders buying large amounts of tokens that would be listed on an exchange (thus increasing the price). But the listing was not yet public knowledge. And that’s the kind of trading that the SEC may be preventing.”