The SEC has reportedly informed Paxos Trust Co. that it plans to sue the stablecoin issuer for violating investor protection laws related to its Binance USD token.
The SEC has sent Paxos a Wells Notice a letter regulators use to inform companies of planned enforcement actions the Wall Street Journal reported on Feb. 12, citing people familiar with the matter.
The notice said Binance USD was an unregistered security, according to people familiar with the matter. According to Investopedia, after receiving a Wells Notice, defendants have 30 days to respond to it with a legal brief called a Wells Submission, an opportunity to argue why charges should not be brought against a potential defendant.
An SEC spokesperson told Cointelegraph that it “does not comment on the existence of a possible investigation.”
A spokesperson for Binance said that BUSD is “a product issued and owned by Paxos,” and that Binance licensed its brand to the company to use with BUSD. The spokesperson added that Paxos is regulated by the New York Department of Financial Services and that BUSD is a “1-to-1 backed stablecoin.”
“Stablecoins are an important safety net for investors seeking refuge in volatile markets, and restricting their access will directly harm millions of people around the world,” a Binance representative said. “We will continue to monitor the situation. Our global users can use Stablecoins of all kinds.”
Cointelegraph reached out to Paxos for comment but did not immediately hear back. Paxos is the owner and issuer of BUSD, a U.S. dollar-backed stablecoin that has existed since the company entered into a partnership with Binance in September 2019. It is the third largest stablecoin with a current market cap of over $16 billion.
Paxos is also the creator of the Paxos Dollar (USDP) stablecoin, launched in 2018, and the driving force behind digital asset exchange itBit, which was formed alongside Paxos in 2012.
Fox Business reporter Eleanor Terrett tweeted on Feb. 12 that the move was a "unilateral effort" by the SEC and other regulators on the "crypto blitz." More Wells notifications are expected to be sent in the coming weeks, she said. The reported action is the latest in what appears to be a crackdown by the SEC against cryptocurrency-related companies. On Feb. 9, regulators announced a $30 million settlement with cryptocurrency exchange Kraken for failing to register its cryptocurrency staking program, which the SEC claimed was a security. Following the action, SEC Chairman Gary Gensler warned crypto firms to "come in and obey the law."
The SEC has faced criticism from its own people for its actions against Kraken. On Feb. 10, SEC Commissioner Hester Peirce said the SEC's actions were "not an efficient or fair way to regulate," and slammed her own agency for shutting down a program that "served people well."
It was also reported last week that the NYDFS was investigating Paxos. However, the exact motivation behind the investigation is currently unclear.
