​SEC notifies Paxos about the violation of the law in the issuance of BUSD

The notice alleges that Binance USD, a digital asset that Paxos issues and lists, is an unregistered security, according to the people.

BUSD is a Binance-branded stablecoin pegged to the dollar on a one-to-one ratio. Binance and Paxos announced the partnership to launch it in 2019. The Paxos-run digital asset exchange, itBit, also lists BUSD. Many other exchanges also list BUSD.

It couldn’t be determined if the SEC notice is specifically related to Paxos’ issuing of the coin, the listing of the coin or both.

“Paxos is not commenting on any individual matter,” said a Paxos company spokeswoman.

Binance said BUSD is issued and owned by Paxos, and it only licenses its brand. “We will continue to monitor the situation,” it said in a statement.

The SEC didn’t respond to requests for comment.

Firms that receive Wells notices are allowed to respond in writing and tell the SEC why it shouldn’t proceed with a lawsuit. Wells notices aren’t a final indication that the SEC will take enforcement action. The agency’s five commissioners must vote to authorize any enforcement settlement or litigation.

The SEC has been intensifying its crypto enforcement against major market participants. Last week, Payward Inc.’s Kraken platform agreed to stop offering crypto staking services in the U.S. and pay $30 million in penalties to the SEC. Staking allows investors to earn a yield by temporarily handing their crypto tokens over to either an intermediary or a cryptocurrency network.

The SEC hasn’t previously taken enforcement action against a major stablecoin issuer. But when the agency last year expanded its special enforcement unit devoted to the crypto market, it said that stablecoins would be an area of focus.

Stablecoin issuers run a lucrative business by investing user deposits in cash and cash-equivalent assets such as short-duration U.S. Treasurys. BUSD has grown to become the world’s third-largest stablecoin, with the market cap of BUSD standing at over $16 billion as of Sunday, according to data provider CoinGecko. Paxos also issues its own stablecoin called Pax Dollar, which has a market cap of around $897 million, per CoinGecko data.

SEC Chairman Gary Gensler has said stablecoins can resemble bank deposits or money-market mutual funds. A panel of regulators led by the Treasury Department said in November 2021 that stablecoins should have a specific regulatory framework and their issuance should be limited to banks. Congress hasn’t passed such legislation, giving regulators more discretion to police the market.

The SEC has over the past six years taken enforcement action against dozens of digital tokens. The agency alleged those assets were the type of investments that must be registered with the SEC before they can be sold to the public. Registration typically involves issuing detailed financial and risk disclosures that investors can use to weigh the pros and cons of an investment.