The United States Securities and Exchange Commission (SEC) has reportedly told stablecoin issuer Paxos Trust Co. it’s planning to sue the firm for violation of investor protection laws in relation to Binance USD (BUSD).
According to a Feb. 12 report in The Wall Street Journal citing people familiar with the matter, the SEC issued a Wells Notice to Paxos — a letter the regulator uses to tell companies of planned enforcement action.
The notice alleges that Binance USD is an unregistered security, according to the people.
According to Investopedia, after a Wells Notice is received, the accused is allowed 30 days to respond to it via a legal brief known as a Wells Submission, which includes arguments to prove why the charges should not be brought against prospective defendants.
An SEC spokesperson told Cointelegraph that it “does not comment on the existence or nonexistence of a possible investigation.”
A spokesperson for Binance said BUSD is a “Paxos issued and owned product” with Binance licensing its brand to the firm for use with BUSD. It added 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 across the globe,” the spokesperson added. “We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”
Cointelegraph contacted Paxos for comment but did not receive an immediate response.
Paxos is the owner and issuer of BUSD — a U.S. 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 cap currently exceeding $16 billion.
Paxos is also the creator of the Paxos Dollar (USDP) stablecoin which was launched in 2018 and is also behind digital asset exchange itBit which it launched in 2012 alongside the founding of Paxos.
FOX Business journalist, Eleanor Terrett, tweeted on Feb. 12 that the move was a “unilateral effort” between the SEC and other regulators to “blitz crypto” and claimed more Wells notices are expected to be sent over 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 seeming crackdown on crypto-related firms.
Related: Coinbase will ‘happily defend’ staking in US courts, says CEO
On Feb. 9 the regulator announced a $30 million settlement with crypto exchange Kraken for its failure to register its crypto staking program which the SEC claimed was a security. Following the action SEC Chair Gary Gensler warned crypto firms to “come in and follow the law.”
The SEC faced criticism from its own people for its action against Kraken. On Feb. 10 SEC Commissioner Hester Peirce said the SEC’s conduct “is not an efficient or fair way of regulating,” slamming her own agency for shutting down a “program that has served people well.”
Reports also emerged last week that Paxos was being investigated by the NYDFS, however, the exact motive behind the probe 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.