On Jan. 26, a Medium article revealed that an entity with control over multiple Ethereum addresses had consistently purchased cryptocurrencies prior to their listing on Binance, selling them for a million-dollar profit after the event.

The article refers to 16 cases from an on-chain analysis perspective, demonstrating how the mysterious entity was aware of Binance listings several days in advance, and how it was unlikely to be carried out by someone with little experience in concealing its tracks.

Surprisingly, Binance founder Changpeng “CZ” Zhao issued a statement on the subject two months later, only after the article gained traction on Twitter. CZ claims that the exchange “froze $2 million associated with the address in question” but does not say whether Binance employees were involved.

Traders are now demanding an investigation into the illegal use of insider information in these multiple “front-run” instances. However, the burden of proving illegal access to privileged information may prove difficult for prosecutors.

On-chain data reveals the covert operations of a Binance listings insider. Over the course of several months, this anonymous individual front-ran the infamous Binance listing pumps of multiple altcoins, booking a 7-figure profit. And he left a trail for us to follow… (1/9)

— FatMan (@FatManTerra) March 28, 2023

At first glance, the accusations about front-running Binance listings appear to be reasonable. However, the on-chain data and numerous instances of “sheer luck” in purchasing cryptocurrencies on decentralized exchanges (DEX) prior to their listing on Binance may not constitute a crime.

Altcoins do not necessarily constitute securities instrument

A securities instrument is a financial asset that can be bought or sold on regulated exchanges, representing ownership or debt from a publicly traded company or government entity. The most common types of securities include stocks, bonds, options and futures contracts.

Thank you for pointing this out. We had frozen $2m associated with the address in question before your thread (and they never asked to re-claim). We are also always fighting potential leaks, etc. We welcome you to point them out in the future too. Helps all of us.

— CZ Binance (@cz_binance) March 29, 2023

In the United States, securities listing and trading are primarily regulated by two government agencies: the Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA). The SEC is responsible for enforcing federal securities laws, including overseeing the registration and disclosure requirements for securities issuers, while FINRA oversees the firms and professionals involved in the securities industry.

The accusations against an entity that has consistently run covert operations ahead of Binance listings, supposedly profiting by more than $1.4 million, may have all the elements that justify non-usual trading activities and, almost certainly, unethical. More importantly, such entities might have gotten the information without Binance employees’ knowledge. Still, there are three reasons why insider trading rules likely can not be applied to such a case.

The Coinbase front-run involved wire fraud

Unlike securities, non-securities investments, such as real estate, art, commodities and cryptocurrencies, are not regulated by the SEC or any other regulatory body. As a result, there are no specific laws or regulations prohibiting front-running in these types of investments.

Even though the above statement is true, the most notorious case of insider trading activity, involving a former product manager at Coinbase, ultimately involved wire fraud. Under U.S. federal law, wire fraud is defined as a crime that involves a scheme to defraud others, with the use of interstate wire communications, including electronic formats.

Related: Crypto exchanges keep failing, so why do we still trust Changpeng Zhao?

Wire fraud is a serious crime that can result in severe penalties, including fines and imprisonment. It is typically investigated and prosecuted by federal law enforcement agencies, such as the Federal Bureau of Investigation or the Department of Justice.

Nikhil Wahi and Sameer Ramani were charged with using Ethereum blockchain wallets to acquire digital assets and trading before the Coinbase announcements. However, jurisdiction is a huge difference versus the wallet tied to the Binance listing, as the exchange is not located in the U.S. and, supposedly, does not serve clients based in that region.

In many jurisdictions, there may not be specific laws or regulations that prohibit front-running in non-securities investments. Therefore, without a legal framework to prohibit this behavior, it may not be considered illegal.

One needs to prove that the information was illegally acquired

Front-running in securities is often associated with insider trading, which is illegal. However, insider trading typically involves trading securities based on material, non-public information. Since non-securities investments do not involve securities, the concept of insider trading does not apply.

Related: Expect the SEC to use its Kraken playbook against staking protocols

To build a case against the owner of the Binance-related listing address, it would be necessary to demonstrate that the owner obtained the privileged information through illegal means. Even if the account has a perfect track record, circumstantial evidence is unlikely to hold in this case.

Unfortunately, cryptocurrency regulation is at best ambiguous, and even the SEC has difficulty proving to courts what cryptocurrencies are considered securities. Moreover, the Commodity Future Trading Commission’s case against Binance and CZ demonstrates that users are not protected from illegal trading activities, regardless of whether they occur with the knowledge or approval of exchange management.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.