The U.S. Securities and Exchange Commission (SEC) has informed Paxos Trust Co. that it plans to sue it for violating investor protection laws in relation to the Binance USD stablecoin.
The Wall Street Journal reported that the US SEC sent Paxos a Wells Notice, which is a letter the regulator uses to notify corporations of impending enforcement action.
The report, which cited people familiar with the situation, further explained that the SEC action became necessary because Binance USD is an unregistered security.
Binance responds: According to the Binance representative, “Stablecoins are a key safety net for investors seeking sanctuary from unpredictable markets and limiting their access will directly damage millions of people across the globe. We’ll keep an eye on the situation. Our users around the world have access to a huge selection of stablecoins.”
The spokesman further stated that Binance USD is a “1 to 1 backed stablecoin” and that Paxos is governed by the New York Department of Financial Services.
What you should know: Binance USD is a U.S. Dollar-collateralized stablecoin that has been in existence since Paxos and Binance partnered in September 2019. Paxos is the owner and issuer of BUSD. With a market cap that is currently above $16 billion, it is the third-largest stablecoin.
The Paxos Dollar (USDP) stablecoin was introduced in 2018 by Paxos. It was also the brainchild of Paxos, which also founded the digital asset exchange itBit in 2012.
The NYDFS was reportedly looking at Paxos, according to reports that surfaced last week. The investigation’s precise purpose, though, is not yet known.
In case you missed it: Paxos is not the only entity that has faced action from SEC recently. Just last week, Nairametrics reported that Kraken agreed to pay the regulator $30 million as a settlement for failing to register its crypto staking program, which the regulator called a security.
SEC Chair Gary Gensler issued a warning to cryptocurrency firms to “come in and respect the rules” in the wake of the incident.
The U.S SEC however received feedback from within its own ranks on its action against Kraken. On February 10, SEC Commissioner Hester Peirce criticized her own organization for ending a “program that has served people well,” claiming that their actions “are not an efficient or fair means of regulating.”
