Paxos Trust Company is on the hit list of the US Securities and Exchange Commission, which intends to slap financial institutions and technology companies specializing in blockchain with court cases for allegedly violating investor protection laws when issuing the Binance USD (BUSD) stablecoin.
According to a report from the Wall Street Journal, the SEC issued Paxos Notice Wells to sell and list unregistered security BUSD. CoinMarketCap data shows BUSD is the third largest stablecoin with a market value of approximately US$16 billion.
Newsflash: The SEC issued a Wells Notice to Paxos informing Paxos of possible enforcement action. In my 18 years in the SEC’s enforcement division, I cannot recall a time when I sent a Wells Notice and enforcement action was not taken. The SEC’s crypto-sweep continues! https://t.co/kItzSEcCUF
– John Reed Stark (@JohnReedStark) February 13, 2023
Paxos Receives Wells Notice From SEC
A Wells Notice is a communication issued by an authority to advise a person or business of the conclusion of an investigation where a violation has been detected. It often takes the form of a letter informing the recipient of the nature of the violation found and the compliance action that will be taken against the recipient.
After receiving the Wells Notice, the accused have 30 days to file a legal response called a Wells Submission, which Investopedia explains must include evidence refuting the allegations.
On February 12, Eleanor Terrett of FOX Business tweeted that the SEC’s planned action against Paxos is part of a “unilateral effort” by the commission and other regulators to “blitz crypto” and that more Wells news is expected to come in the coming weeks.
Another step in the unilateral effort between @SECGov, @NYDFS and @USOCC for crypto blitz. More Wells news out in the coming 2-3 weeks, I told.
Keep an eye on it @JunoFinanceHQ. https://t.co/u4Q3pHN2lH
— Eleanor Terrett (@EleanorTerrett) February 13, 2023
This SEC action follows new restrictions on cryptocurrency staking, a booming industry where users earn money or interest by committing crypto assets to an intermediary or crypto system. It also comes as US regulators intensify efforts to monitor cryptocurrency enterprises in the wake of the widely reported bankruptcy of cryptocurrency exchange FTX.
Image: Coinpedia
Popularity of Stablecoins
After the mania of 2017, stablecoins started gaining popularity. After bitcoin’s rise to nearly $20,000 and a drop of more than 50%, investors are looking for a less volatile crypto-based outlet.
The popularity of crypto-based coins has prompted the US Federal Reserve to launch its own investigation into digital currencies, along with national governments and other central banks.
BUSD, like Tether’s two top stablecoins USDT and USD Coin (USDC), is pegged to the US dollar at a 1:1 ratio. Paxos started issuing the BUSD stablecoin in 2019 after establishing a relationship with BitUSD. However, it remains unclear whether the SEC’s notice is primarily related to the Paxos BUSD issue, the BUSD listing, or both.
Crypto total market cap at $969 billion on the daily chart | Chart: TradingView.com
“Binance licenses the brand to Paxos to use BUSD, which is wholly owned by Paxos and regulated/supervised by the New York Department of Financial Services,” Forkast quoted a representative of Binance as saying in an email statement.
Binance explains its market position as follows:
“BUSD is a 1-to-1 stablecoin that is among the most transparent stablecoins out there.”
The SEC has not taken any significant action against stablecoin issuers in the market. However, regulators continue to expand market inspections.
-Featured image from Army Times