By Michael Scott
The US Securities and Exchange Commission (SEC) is initiating a lawsuit against Paxos, alleging it violated investor protection law for offering Binance USD despite being unregistered security.
SEC informed Paxos Trust Co. of a looming lawsuit accusing the stablecoin issuer it contravened investor protection regulations through its Binance USD token.
Paxos Served with Wells Notice
The revelation of a looming SEC lawsuit emerged in a February 12 article in the Wall Street Journal that the securities’ watchdog served the stablecoin issuer with a Wells Notice. The letter conveys SEC’s alert to the company of a looming enforcement action.
The letter indicates that Binance USD contravenes the federal laws safeguarding investors’ interests as it operates without fulfilling the security registration requirements.
The Wells Notice prompts the accused to issue a response within 30 days. The response is captured in a legal brief identified as Wells Submission. The brief provides the opportunity for the prospective defendants to submit reasons why SEC should reconsider bringing the charges against them.
Binance Confirms Paxos Ownership of BUSD Token
SEC spokesperson was noncommittal about the possible investigation of Paxos. Nonetheless, the Binance representative indicated that BUSD involves a Paxos fully-owned and issued product.
The executive revealed that Binance only licensed Paxos to utilize its brand for naming the product as a BUSD token.
The representative confirmed that Paxos operations are subject to the Financial Services Department in New York. The firm is licensed to offer BUSD tokens as a fully matched stablecoin.
Stablecoins Offers Investment Safety Net
Binance’s representative portrayed stablecoins as offering a safety net for crypto investors. The products provide options for investors seeking refuge from the volatile crypto market that often hurts the total value locked during price fluctuation.
Binance reassured its clients of monitoring the Paxos situation. Nevertheless, it reminded global users to consider other stablecoins available on the Binance platform.
Paxos issues and owns the dollar-collateralized stablecoin identified as BUSD. The token began circulation in the September 2019 partnership involving Paxos and Binance. At press time, BUSD ranks third largest stablecoin, with its total market capitalization hovering above $16 billion.
Paxos Running Diversified Portfolio
Paxos runs and manages the Paxos Dollar (USDP) as the stablecoin creator since 2018. The firm identifies with the itBit digital asset exchange that started the shop in 2012 when Paxos was launching operations.
The move by the SEC to issue the Wells Notice prompted a reaction from the crypto community. A February 12 tweet by the FOX lead journalist in business affairs, Eleanor Terrett, considered the Well Notice symbolizing the unilateral effort involving multiple regulators to blitz the crypto operations.
Eleanor expressed confidence Paxos Wells Submission would set the ball rolling on the direction that the SEC’s charge would take. She projected that the SEC would likely issue more Wells Notices.
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