According to reports, the Securities and Exchange Commission (SEC) has initiated an investigation into how crypto exchanges work to avoid insider trading.
On June 15, FOX Business reported that the SEC has written a letter to a prominent crypto exchange demanding information about how the platform safeguards users from insider trading, according to a source with direct knowledge of the commission's work.
According to the insider, the same letter was sent to various exchanges.
It's unclear which exchange or exchanges received the request, but Coinbase, Binance, FTX, and Crypto.com all declined to comment, according to the news outlet. The SEC also refused to confirm the investigation.
However, it could be a routine compliance audit through the Office of Compliance Inspection and Examinations. Or the SEC could be looking for clues to litigate against an exchange's alleged legal infractions through the enforcement division.
The SEC has been looking into allegations of insider trading at OpenSea, the world's largest non-fungible token (NFT) marketplace.
According to Jeremy Hogan, a partner at the Hogan & Hogan law firm, the SEC's recent interest in exchanges could originate from charges of insider trading on tokens that were planned for listing and were expected to see a price increase.
Hogan said, "It's that kind of trade, that the SEC might be alerting the exchange they need to take control of."
The SEC's presumed jurisdiction over crypto exchanges would be revoked under the proposed Digital Commodity Exchange Act of 2022.
The law would give the Commodity Futures Trading Commission (CFTC) control over crypto exchanges and stablecoin providers if it passes.
The SEC's decision to launch the investigation may have been prompted by current market conditions and recent scandals in the crypto business.
The Terra ecosystem failed early last month as the Terra USD stablecoin depegged and the LUNA cryptocurrency lost 99.9% of its value.