The US SEC has made a series of drastic moves targeting the crypto sector. First, it announced that unregistered staking is no longer allowed as it now sees it as an unregistered security. Next, it put companies that offer or give crypto advice under a microscope, carefully monitoring each move, ready to react if it believes the advice is deviating from what it considers safe.
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
Now, new reports coming from people familiar with the matter say that the regulator has sent a Wells Notice to Paxos — a known stablecoin issuer — notifying it of its intention to sue the firm. The SEC has allegedly told Paxos Trust that it violated investor protection laws by issuing Binance USD (BUSD).
The sources say that the SEC views BUSD as an unregistered security, and so it sent the Wells Notice, which is a letter that the regulator uses to inform firms of an upcoming enforcement action.
The rules involving a Wells Notice say that, after it is received, it allows the accused 30 days to respond to it by sending a legal brief. The brief, known as a Wells Submission, allows the accused to present their case and argue why the charges should not be brought. In other words, the SEC has allowed Paxos an opportunity to defend itself and explain its case before the matter is taken to court.
Removing stablecoins would harm millions, says Binance
When asked about the matter, the SEC spokesperson refused to confirm or deny the existence of an investigation. Meanwhile, Binance stated that BUSD is a product both issued and owned by Paxos. Binance did provide licensing of its brand to the stablecoin issuer, for the purpose of creating the stablecoin.
Binance reminded that Paxos is a regulated entity licensed by the New York Department of Financial Services. As for BUSD, it is a real stablecoin, backed 1:1 by fiat currency, as the exchange said. It added that stablecoins are a critical safety net for investors who need a way to protect themselves from the volatility of crypto markets. The exchange argued that removing them would directly harm millions across the globe.
Paxos did not comment on the matter as of yet. The company is the owner and issuer of BUSD, which is backed by the US dollar. BUSD has been around since September 2019, when Binance and Paxos entered into a partnership, and at this point, it is the third-largest stablecoin in the crypto industry. Its market cap at the time of writing is above $16 billion.
Apart from BUSD, Paxos has one older stablecoin from 2018 — Paxos Dollar (USDP).
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