The United States Securities and Exchange Commission (SEC) has reportedly told stablecoin issuer Paxos Trust Co. that it plans to sue the company for violation of investor protection laws in relation to Binance USD (BUSD).
According to a February 12 report in The Wall Street Journal citing people familiar with the matter, the SEC issued a notice from Wells to Paxos — a letter the regulator uses to inform companies of planned enforcement actions.
The notice alleges that Binance USD is an unregistered security, according to the people.
According to Investopedia, after receiving a Wells Notice, the defendant has 30 days to respond to it through a legal brief known as a Wells Submission, which includes arguments to show why charges should not be filed against potential defendants.
An SEC spokesperson told Cointelegraph that it “does not comment on the existence or non-existence of a potential investigation.”
A Binance spokesperson said BUSD is a “product issued and owned by Paxos” with Binance licensing its brand to the firm for use with BUSD. He added that Paxos is regulated by the New York Department of Financial Services (NYDFS) and that BUSD is a “1-to-1 backed stablecoin.”
“Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people around the world,” the spokesperson added. “We will continue to monitor the situation. Our global users have a wide range of stablecoins at their disposal.”
Cointelegraph reached out to Paxos for comment but did not receive an immediate response.
Paxos is the owner and issuer of BUSD – a US dollar-collateralized stablecoin – which has been around since the firm struck a partnership with crypto exchange Binance in September 2019. It is the third-largest stablecoin with a market capitalization currently exceeding 16,000. millions of dollars.
Paxos is also the creator of the stablecoin Paxos Dollar (USDP), which launched in 2018, and is also behind the digital asset exchange itBit, which launched in 2012 in conjunction with founding Paxos.
FOX Business journalist Eleanor Terrett tweeted on February 12 that the move was a “unilateral effort” between the SEC and other regulators to “blitz crypto” and stated that more Wells notices are expected to be sent out in the coming weeks.
Another step in the unilateral effort between the @SECGov, @NYDFS and @USOCC to blitz crypto. More Wells notices going out in the coming 2-3 weeks, I’m told.
Keep an eye on @JunoFinanceHQ. https://t.co/u4Q3pHN2lH
— Eleanor Terrett (@EleanorTerrett) February 13, 2023
The reported action is the latest move by the SEC in its apparent heavy hand against cryptocurrency-related firms.
On February 9, the regulator announced a $30 million settlement with Kraken for failing to register its cryptocurrency staking program, which the SEC claimed was a security. Following the action, SEC Chairman Gary Gensler warned crypto companies to “follow the law.”
The SEC faced criticism from its own people for its action against Kraken. On February 10, SEC Commissioner Hester Peirce said the SEC’s conduct “is not an efficient or fair way to regulate,” criticizing her own agency for shutting down a “program that has served people well.”
Reports also surfaced last week that Paxos was being investigated by the NYDFS, however the exact motive behind the investigation is currently unclear.
Update: (Feb 13, 11:45 AM UTC): Added response from SEC spokesperson.
Update: (Feb 13, 2:00 AM UTC): Added response from Binance spokesperson.
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