Can a CEX Be Held Liable for a Front-Running Incident If It Was Unaware of the Employee’s Actions?

Yes, a CEX can be held liable under the principle of "failure to supervise." Regulators hold exchanges responsible for establishing and enforcing robust internal controls, surveillance, and compliance programs (like the Chinese Wall) to prevent such misconduct. Even if the exchange was unaware, its failure to detect and prevent the front-running is a violation, leading to significant fines and sanctions.