The New York State Department of Financial Services, or NYDFS, reportedly received a complaint from the issuer of stablecoin Circle regarding Binance’s reserves ahead of its crackdown on BUSD.
According to a Bloomberg report on February 13, Circle alerted NYDFS in a fall 2022 complaint that Binance’s reserves were insufficient to back its tokens, which apparently included the Binance USD (BUSD) stablecoin. A person familiar with the matter reportedly said that Circle’s team had discovered the information through blockchain data.
Circle’s actions came before the United States Securities and Exchange Commission plans to file a lawsuit against Paxos, alleging that BUSD was an unregistered security. The NYDFS announced its own regulatory action on February 13, ordering Paxos to “stop minting BUSD issued by Paxos” and reiterating its requirements that tokens under its regime be fully backed by cash or cash equivalents.
In a February 13 statement in response to the SEC’s complaint, Paxos saying BUSD “was not a security under the federal securities laws,” adding:
“BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in remote bankruptcy accounts. We will engage with SEC staff on this issue and are prepared to vigorously litigate if necessary.”
Paxos issued the following statement on February 13. Read the full statement here: https://t.co/jbfcBAiCgf pic.twitter.com/T7k80QtKyX
—Paxos (@PaxosGlobal) February 13, 2023
Related: New York Financial Regulator Investigating Gemini Over FDIC Claims: Report
The crypto regulatory action was the latest in the United States to affect crypto companies, as the SEC reached an agreement with Kraken to stop its staking services for US users. The financial regulator is also continuing to engage Ripple in a lawsuit over XRP, alleging that the tokens were securities under its purview.
