The U.S. Securities and Exchange Commission (SEC) is reportedly looking into suing Paxos Trust Co. the issuer of the world’s third-largest stablecoin BUSD. The development comes just within a week of New York regulator NYDFS launching an investigation into the company.
This could be another major escalation by the SEC after its first attack on crypto staking last week. People familiar with the matter told the Wall Street Journal that the SEC’s enforcement staff issued a letter to Paxos dubbed Well notice. The securities regulator uses this letter to inform companies regarding upcoming enforcement.
In its letter, the SEC noted that Binance’s BUSD, the Paxos-issued stablecoin serves as an unregistered security. BUSD is currently the third-largest stablecoin in the crypto space with a market cap of $16.1 billion.
Similar to the top-two stablecoins, BUSD is pegged to the USD in a one-to-one ratio. Paxos started issuing BUSD stablecoin back in 2019 as the two entered a partnership back in 2019. However, it still isn’t clear if the SEC’s notice specifically relates to Paxos’s issuance of BUSD, listing BUSD, or both.
Speaking to WSJ, a Paxos company spokeswoman said: “Paxos is not commenting on any individual matter”. Binance said that BUSD is being issued by Paxos which licenses its brand. “We will continue to monitor the situation,” it said.
NYDFS Investigating Paxos Over BUSD
Last week, the New York State Department of Financial Services (NYDFS) also started probing Paxos over concerns regarding its issuance of Binance’s BUSD stablecoin. An SEC spokesperson told Bloomberg:
“The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing”.
Over the Wells notices, Binance can issue a response to the SEC explaining why it shouldn’t proceed with the lawsuit. The Wells notices aren’t the final indication that the SEC would initiate an action. To authorize this enforcement settlement, the agency’s five commissioners have to vote.
So far, the SEC hasn’t taken any major action against the top stablecoin issuers in the market. However, the agency is increasing its scrutiny in the market every passing day.
Clarifying its market position, Binance said: “BUSD is a 1-to-1 backed stablecoin that is one of the most transparent stablecoins in existence”.