The United States Securities and Exchange Commission (SEC) is reportedly planning to sue stablecoin issuer, Paxos Trust Company over violating investor protection laws in its issue of the Binance USD (BUSD) stablecoin.
The SEC has intensified its war on cryptocurrency companies over the past few months. The financial agency has cracked down on several crypto outfits such as Gemini Trust and Genesis Global Capital with selling unregistered products. Following the collapse of FTX, SEC Chair, Gary Gensler has called for stricter enforcement in the digital assets sector calling the industry “Wild West”.
Last week, crypto exchange Kraken agreed to shut down its U.S. cryptocurrency staking service and pay a whopping $30 million in penalties to the SEC. The regulator had alleged that Kraken’s staking service was an illegal sale of securities.
Another Attack on Crypto
According to reports, in yet another brazen attack on crypto, the SEC sent a letter to Paxos, known as a “Wells notice” alleging that the U.S. dollar-pegged BUSD stablecoin is an unregistered security and the regulator is planning to sue the firm for violation of investor protection laws.
A Wells Notice is issued by the US SEC to inform individuals or companies of completed investigations where infractions have been discovered. The receiver is then allowed 30 days to respond to he letter via a legal brief known as a Wells Submission, which includes arguments to prove why the charges should not be brought against prospective defendants.
As per a Bloomberg report, Paxos also faces an investigation by the New York State Department of Financial Services. Meanwhile, a spokesperson for Binance said BUSD is a “Paxos issued and owned product” with Binance licensing its brand to the firm for use with BUSD. The spokesperson explained,
“Stablecoins are a critical safety net for [cryptocurrency] 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.”
Are More Wells Notices Coming?
Recently, Paxos had rejected rumors that it has been denied or asked to withdraw its application for a national trust bank charter from the Office of the Comptroller of the Currency. The company received preliminary approval to operate a national trust bank in 2021.
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
On February 13, business journalist, Eleanor Terrett took to Twitter to call the move a “unilateral effort” between the SEC and other regulators to “blitz crypto” claiming more Wells notices are expected to be sent over the coming weeks.