REGULATION

Insider: SEC to sue BUSD issuer Paxos for allegedly issuing unregistered securities

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Insider: SEC to sue BUSD issuer Paxos for allegedly issuing unregistered securities

Stablecoin issuer Paxos was reported to be under investigation by the New York Department of Financial Services (NYDFS) on 2/10, and on 2/11 Bloomberg indicated that PayPal has temporarily halted its stablecoin project as Paxos is its partner. The latest news reveals that the U.S. Securities and Exchange Commission (SEC) deems BUSD as an unregistered security and has issued a subpoena to Paxos.

SEC Issues Wells Notice to Paxos Trust Co.

The Wall Street Journal reported that the SEC has issued a Wells Notice to stablecoin issuer Paxos Trust Co., indicating potential enforcement action for alleged violations of investor protection laws and issuing unregistered securities.

Previously, there were rumors circulating within the crypto community and media that Paxos, the stablecoin issuer, was asked by the U.S. Office of the Comptroller of the Currency (OCC) to withdraw its banking license application, which Paxos denied on Twitter.

The scope of the investigation was not clear at the time, but according to sources cited by The Wall Street Journal, the SEC's focus is on the USD stablecoin BUSD.

Paxos' official Twitter account's last tweet on February 9 clarified that they were not asked by the OCC to withdraw their license application and declined to comment further.

Binance stated that BUSD is issued by Paxos and they only license the brand, and they will continue to monitor the situation.

Wells Process

The Wells Process refers to the procedure where enforcement authorities, upon gathering sufficient evidence to recommend enforcement action to the commission, notify the subject of the investigation through a Wells Process notice, also known as a Wells notice.

Receiving a Wells notice does not necessarily mean that both parties will end up in court. Paxos can provide a written rebuttal to the SEC's arguments, and the five commissioners of the SEC must vote to authorize a settlement or litigation.

Next Steps: Exchanges?

X3 founder Andrew tweeted on February 10 that the SEC will take more actions in the crypto space in the future, with exchanges and stablecoins expected to receive Wells notices in the coming days.

He reiterated today in a tweet that the SEC is currently issuing Wells notices to stablecoins and the next step will be exchanges.

Former head of the SEC's Office of Internet Enforcement, John Reed Stark, tweeted :

I was with the SEC's enforcement division for 18 years, and I don't recall a Wells notice being issued without eventual enforcement action. The SEC's crackdown on the crypto space will continue.