Breaking: Paxos facing SEC lawsuit over Binance USD

The United States Securities and Exchange Commission (SEC) has reportedly told stablecoin issuer Paxos Trust Co. it’s planning to sue the firm for violation of investor protection laws in relation to Binance USD (BUSD).

According to a Feb. 12 report in The Wall Street Journal citing people familiar with the matter, the SEC issued a Wells Notice to Paxos — a letter the regulator uses to tell companies of planned enforcement action.

The notice alleges that Binance USD is an unregistered security, according to the people.

According to Investopedia, after a Wells Notice is received, the accused is allowed 30 days to respond to it via a legal brief known as a Wells Submission, which includes arguments to prove why the charges should not be brought against prospective defendants.

Cointelegraph contacted Paxos, Binance and the SEC for comment but did not receive an immediate response.

Paxos is the owner and issuer of BUSD — a U.S. Dollar-collateralized stablecoin — which has been around since the firm struck a partnership with crypto exchange Binance in September 2019. It is the third largest stablecoin with a market cap currently exceeding $16 billion.

Paxos is also the creator of the Paxos Dollar (USDP) stablecoin which was launched in 2018 and is also behind digital asset exchange itBit which it launched in 2012 alongside the founding of Paxos.

The reported action is the latest move by the SEC in its seeming crackdown on crypto-related firms.

On Feb. 9 the regulator announced a $30 million settlement with crypto exchange Kraken for its failure to register its crypto staking program which the SEC claimed was a security. Following the action SEC Chair Gary Gensler warned crypto firms to “come in and follow the law.”

The SEC faced criticism from its own people for its action against Kraken. On Feb. 10 SEC Commissioner Hester Peirce said the SEC’s conduct “is not an efficient or fair way of regulating,” slamming her own agency for shutting down a “program that has served people well.”

Reports also emerged last week that Paxos was being investigated by the New York Department of Financial Services (NYDFS), however, the exact motive behind the probe is currently unclear.