• The U.S. Securities and Exchange Commission (SEC) enforcement division has issued a Wells notice to Paxos, the issuer of stablecoin Binance USD (BUSD).
• The SEC plans to sue Paxos for allegedly violating securities and investor protection laws as BUSD is considered an unregistered security
• A Wells notice does not mean that the SEC will take enforcement action, as the commissioners of the SEC have to vote in order to authorize any enforcement litigation or settlement by the agency
SEC Issues Notice Against Paxos
The U.S. Securities and Exchange Commission (SEC) enforcement division has issued a Wells notice to Paxos — The Wall Street Journal (WSJ) reported, citing anonymous sources. The New York Department of Financial Services instructed Paxos Trust Co. — the issuer of stablecoin Binance USD (BUSD) — to halt any further creation of BUSD, according to the WSJ.
What is a Wells Notice?
A Wells notice is a formal notice from the SEC which informs the recipient that it plans to bring enforcement actions against them. In this case, they plan to sue Paxos for allegedly violating securities and investor protection laws because BUSD is considered an unregistered security.
Paxos Issued BUSD in Partnership with Binance
Paxos issued 1:1 dollar-pegged stablecoin in partnership with Binance in September 2019. Since then, BUSD has grown to be the third largest stablecoin and seventh largest cryptocurrency — with a market cap of $16.15 billion — according to CryptoSlate data.
What Happens Next?
A Wells notice does not mean that the SEC will take enforcement action automatically; instead, five commissioners have to vote in order for any enforcement litigation or settlement by the agency authorized .Paxos can submit a written response to contest their case as well as why they should not be sued.
Stablecoins on SEC’s Radar
When the SEC nearly doubled its Crypto Assets and Cyber Unit in May 2022, it said that stablecoins would be an area of focus. Stablecoins are similar bank deposits or money-market mutual funds accordingto SEC Chairman Gary Gensler