Securities and Exchange Commission may sue BUSD stablecoin issuer Paxos, WSJ reports

The US Securities and Exchange Commission (SEC) may sue Paxos Trust Company for allegedly violating investor protection laws in the issuance of the Binance USD (BUSD) stablecoin, the Wall Street Journal reported on Sunday.

See related article: Stablecoin issuer Paxos investigated by New York regulator

Fast facts

• The SEC claimed that the US dollar-pegged BUSD stablecoin is an unregistered security in a letter, known as a Wells notice, sent to Paxos to notify it of possible enforcement action against the company, the WSJ reported, citing unnamed sources familiar with the matter .

• The Wells notice is not the final indication that the SEC will proceed with enforcement, the WSJ noted, as recipients of the notice are allowed to respond to the SEC explaining why it should not pursue a lawsuit.

• Crypto trust company Paxos issues and lists BUSD, which is currently the world’s third-largest stablecoin with over $16 billion in market capitalization, according to CoinMarketCap data.

• New York-based Paxos launched the US dollar-backed BUSD stablecoin in partnership with Binance in 2019 after receiving approval from the New York State Department of Financial Services (NYDFS). However, Binance reportedly acknowledged that glitches in its system had led to the stablecoin being undersecured on several occasions.

• “Binance licenses its brand to Paxos for use with BUSD, which is wholly owned by Paxos and regulated/supervised by the NY Department of Financial Services,” a Binance spokesperson said in an email to Discard.

• “Stablecoins are a critical safety net for [cryptocurrency] investors seeking refuge from volatile markets and limiting their access will directly harm millions of people around the world. We will continue to monitor the situation, the email states.

• Paxos is also facing an investigation by the New York State Department of Financial Services, according to a Bloomberg report, although the scope of that investigation was not made clear.

• The SEC move appears to be part of a broader investigation into cryptocurrency operators. Last week, the SEC fined US-based crypto exchange Kraken US$30 million for failing to register the offering and sale of its crypto staking programs. In response, Kraken announced the shutdown of its on-chain staking services for US users on Thursday.

• Paxos did not immediately respond Discardits request for comments via email.

See related article: Binance’s BUSD-peg stablecoin hasn’t always been fully secured: report