Skip to main content

On Wednesday, the U.S. Securities and Exchange Commission (SEC) initiated a probe into the way crypto exchanges are handling the growing problem of insider trading.

According to Fox Business, multiple crypto exchanges have received a letter from the SEC investigating how virtual asset exchanges are grappling with insider trading, an illegal practice of using confidential information for one's own economic advantage.

Earlier this month, the SEC hinted that it may categorize non-fungible tokens as securities after a former OpenSea employee was charged with insider trading, marking the first time that an NFT scheme was linked to the practice. "[The] charges demonstrate the commitment of [the Department of Justice] to stamping out insider trading – whether it occurs on the stock market or the blockchain," the Justice Department said at the time.

"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 Hogan & Hogan law firm told Fox Business. "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."

Scroll to Continue

Recommended for You

It's also likely that the string of high-profile cases around crypto and NFT scams have spurred the SEC into action, compelling it to take a hard stance on the growing problem.

The SEC is hoping to tighten compliance across the industry, and is already asking crypto exchanges to register if they're selling security tokens that are not registered in order to sidestep penalties.