According to a report published on February 12, 2023, New York-based financial institution and technology company Paxos received a notice from Wells from the US Securities and Exchange Commission (SEC) regarding alleged violations of investor protection laws. Paxos revealed the next day that it would no longer mint BUSD and would end its relationship with the Binance-branded stablecoin in February 2024.
Report claims SEC plans to sue Paxos for alleged investor protection violations, firm ordered to stop minting BUSD
Sources quoted by the Wall Street Journal (WSJ) say that the US Securities and Exchange Commission (SEC) plans to sue Paxos for violating investor protection laws. People familiar with the matter say Paxos has received a Wells Notice, a letter sent by a securities regulator regarding a potential lawsuit. The notice alleges that the Binance USD stablecoin, which is issued and managed by Paxos, is an unregistered security.
Three WSJ reporters published the report and contacted Paxos and Binance for comment. Binance informed the WSJ that the brand of the stablecoin is licensed by the major exchange, but Paxos issues and manages the dollar-pegged asset.
A Paxos spokesperson told reporters that the company “will not comment on any individual matter.” The latest news follows an alleged investigation into Paxos by the New York State Department of Financial Services (NYDFS), which was originally reported by Coindesk’s Nikhilesh De on Feb. 9.
Paxos was founded in 2012 and was originally called Itbit. In 2015, the New York State Department of Financial Services (NYDFS) granted permission for Paxos to convert to a limited purpose trust statute and the company changed its name from Itbit to Paxos Trust Company.
The firm manages two stablecoins: pax dollar (USDP) and binance usd (BUSD), as well as pax gold (PAXG). USDP has a market capitalization of approximately $898.16 million, while the market valuation of BUSD is estimated to be around $16.1 billion.
PAXG has a market capitalization of approximately $492 million. Over the past 12 months, PAXG supply has declined approximately 3.1%, while USDP has declined 15.71%. Year-to-date statistics show that the circulating supply of BUSD has decreased by 9%, but during the middle of 2022, the supply of BUSD increased.
Paxos will stop minting Binance Stablecoin
Last month, 5 billion BUSD was redeemed in 24 days. Binance told the WSJ that he will “continue to monitor the situation” when asked about the alleged SEC charges against Paxos. To date, the country’s main securities regulator has not taken any enforcement action against stablecoin issuers.
Following the report in the WSJ on Sunday, the publication even more reported that the New York Department of Financial Services (NYDFS) has ordered the company to stop issuing BUSD. Paxos confirmed in a Press release that it will stop minting the stablecoin and end its relationship with it by 2024. The company claimed it was led by the New York regulator and has been working closely with authorities. Paxos will continue to manage BUSD until they are fully redeemed, which will be at least February 2024.”
What do you think about the alleged SEC charges against Paxos and the future of stablecoins in the US? Share your thoughts in the comments below.
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