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The United States Securities and Exchange Commission (SEC) has reportedly informed Paxos Trust Co. of intentions to sue the crypto platform. This comes just days after news broke that the New York Department of Finance was investigating the services of Paxos.
Reports note that the SEC will be issuing legal action against the crypto firm as a stablecoin issuer as a result of violation of investor protection laws by creating and issuing Binance USD ($BUSD), the stablecoin supported by Paxos. According to the Wall Street Journal, the SEC has issued a Wells Notice to Paxos – a letter the regulator sends to companies to inform them of planned enforcement action. The notice alleges that Paxos is supporting an unregistered security by offering the trade and sale of Binance USD.
According to a Binance representative, stablecoins are a form of investment away from the fiat and traditional currencies, rather than a security, noting:
“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. We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”
The move by the SEC is part of a wider crackdown on crypto-related firms. More Wells notices are expected to be going out to crypto firms over securities violations, according to Fox business journalist Eleanor Terrett.
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
Earlier in the month, the SEC also announced a $30 million settlement with crypto exchange Kraken. The settlement came after Kraken had not registered its crypto staking program. According to the SEC, the staking program violated securities law. The action against Kraken sparked controversy from within the SEC, with Commissioner Hester Peirce saying the agency’s conduct was not efficient or fair.
The crypto industry continues to evolve, and regulators are trying to catch up with it. It remains to be seen how the SEC’s actions will play out, but it is clear that the agency is determined to ensure that crypto firms comply with investor protection laws. It is also important to note that stablecoins play a critical role as a safety net for investors in volatile markets, and limiting their access could harm millions of people worldwide.