Updated 10:15UTC, Feb.13: Binance CEO Changpeng Zhao took to Twitter to reassure users that BUSD is wholly owned and managed by Paxos and that all funds are safe.
The US Securities and Exchange Commission (SEC) has reportedly warned Paxos Trust Co. that a lawsuit could be on the way.
As per a source-based report by the Wall Street Journal, the agency could take legal enforcement for violating investor protection laws.
Paxos Served a Wells Notice
The watchdog told Paxos in a Wells Notice that platform-listed Binance USD is an unregistered security, the report noted. However, it couldn’t be ascertained if the action stems from Paxos issuing the coin, listing it, or both.
The crypto platform nor SEC representatives had not responded to the news at the time of writing.
In a similar action, the SEC has also taken action against the Kraken cryptocurrency exchange for providing unregulated securities. Kraken resolved these allegations by shutting down its staking facilities and paying the SEC a $30 million fine.
In September 2021, the SEC also served Coinbase a Wells Notice for the exchange’s Lend program. Coinbase CLO Paul Grewal responded that the SEC believed Lend was involved in a security offering.
Furthermore, according to industry sources, there may be more such actions forthcoming.
Regulators Tighten Crypto Action
BUSD is a stablecoin that has a 1:1 correlation to the dollar. It launched in 2019 after Binance and Paxos announced a partnership. Rich Teo, the co-founder of Paxos, said at the time that the approval of BUSD by the New York State Department of Financial Services (NYDFS) is an important step towards long-term global stability in crypto markets.
Meanwhile, Paxos’ USDP stablecoin momentarily drifted away from the dollar. On Feb. 10, it dropped to $0.98 after the NYDFS confirmed that it was probing the crypto company.
The NYDFS has already taken action in an effort to establish some control over the cryptocurrency market. Superintendent Adrienne A. Harris published regulatory guidelines for stablecoins pegged to the dollar in June 2022.
SEC Chair Gary Gensler recently reiterated that crypto businesses must fully disclose information about their financial products. Meanwhile, amid the regulatory action, PayPal has also reportedly paused work on its stablecoin.
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