SEC has begun legal plans to sue Paxos for issuing and listing Binance USD, a well-known stablecoin in the crypto ecosystem. The financial watchdog argues that the firm’s token issuance violates investor protection laws.
SEC trails Paxos
The US Securities and Exchange Commission (SEC) has issued a Wells notice to Paxos, a New York-based crypto firm behind the issuance of BUSD. According to the Wall Street Journal, the SEC plans to sue Paxos, also under investigation by New York officials, for alleged claims of violating investor protection regulations laid up front on the distribution of securities.
The Wells notice is an informative letter that the financial watchdog issues to companies and individuals detailing the possibility of a lawsuit. After the notice is issued, the subject firm or individual is legally allowed to respond to the letter with satisfactory reasons why the SEC should not further the case in court.
A Twitter user by the username @adamcochran issued a thread detailing the definition of security according to US regulations.
Another user responded to Adam, terming fiat currencies such as the US dollar as securities.
According to the notice, the SEC argued that Binance USD (BUSD) is an “unregistered security” allegedly illegally listed and issued by Paxos. BUSD is a stablecoin pegged to the underlying value of the US dollar in a ratio of 1:1.
It is a collateralized stablecoin regulated by the New York State Department of Financial Services. According to Paxos, BUSD is 100% backed by reserves in fiat and US Treasury bills.
Binance responds to the issue
Sources familiar with the matter did not reveal if the impending lawsuit resulted from issuing or listing the stablecoin. Paxos refused to give any news concerning the matter.
On the other hand, Binance, one of the world’s largest exchanges and a contributor to the stablecoin development, mentioned that BUSD is solemnly issued and owned by Paxos and that it only licenses its brand on the token. The exchange also stated that it “will continue to monitor the situation.”
Paxos becomes the latest ‘victim’ to face SEC scrutiny after the financial watchdog declared war on crypto following the collapse of FTX. The news could be a ripple effect from a statement issued by SEC chair Gary Gensler in 2021. Gary stated that stablecoins could fall under the umbrella of ‘securities’ definition according to US law while speaking to the American Bar Association in July.