The SEC crypto insider trading program is ramping up

By Holly Shields
June 18, 2022 0

Amid a wave of cryptocurrency-related cybercrime, the U.S. Securities and Exchange Commission (SEC) is reportedly investigating unchecked insider trading in the digital asset space.

According to a report by Fox Business, a prominent exchange has been issued with an official request for information on its security measures against internal crimes.

This comes as the SEC and other financial watchdogs have been actively scrutinizing crypto players in a bear market rocked by major losses.

The industry has long been accused of being rife with illicit dealings, such as money laundering. Now, the US regulator is cracking down on unlawful employee activity that effectively amounts to insider trading. 

The first big case of this kind was brought to light last year. In September, the former product manager of the NFT token trading platform OpenSea Nate Chastain was found to be front-running the market by discreetly purchasing NFTs before they debuted on the homepage.

Fast forward to this week, and the U.S. Department of Justice has arrested Chastain in what they’re referring to as the “first-ever digital asset insider trading scheme”. He is facing 40 years for pocketing 19 ETH.

Meanwhile, following the crash of the LUNA and UST, the SEC has been scoping out Terraform Lab for potentially violating investor protection law through its marketing.

Commission chair Gary Gensler has questioned the conflicts of interest that arise through the services offered by crypto exchanges, including market-making, custody, and facilitating trading on their platforms. He has highlighted the challenges of platforms trading ahead of and against their users.

Nevertheless, the SEC’s role in overseeing the crypto market is being hotly debated at the moment, with lawmakers arguing whether they ought to be classed as securities. 

2023 may see the passing of the Responsible Financial Innovation Act, which would alter how digital assets are regulated and provide clarification on crypto’s insider trading problem.


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