The United States Securities and Exchange Commission (SEC) has informed Paxos Trust Co. that it intends to sue the company for violating investor protection laws. This move comes as part of the SEC’s ongoing campaign to enforce regulations in the cryptocurrency market.Wells Notice Issued to PaxosThe SEC’s enforcement staff has issued a Wells notice to Paxos, a letter used to inform companies and individuals of a possible enforcement action. The notice alleges that Binance USD, a digital asset issued and listed by Paxos, is an unregistered security.The reason for the notice, specifically related to the issuance or listing of the coin, is not yet determined. Firms that receive Wells notices have the opportunity to respond in writing and argue why the SEC should not proceed with a lawsuit.Binance and Paxos partnershipBUSD is a Binance-branded stablecoin pegged to the dollar at a one-to-one ratio. Binance and Paxos announced their partnership to launch BUSD in 2019, and it is now listed on several exchanges including Paxos-run digital asset exchange itBit.Paxos and Binance Respond to SEC NoticePaxos declined to comment on the matter, while Binance stated that BUSD is issued and owned by Paxos and that it only licenses its brand.SEC’s Stance on StablecoinsThe SEC has previously indicated that stablecoins would be a focus for its enforcement unit, and SEC Chairman Gary Gensler has said stablecoins can resemble bank deposits or money-market mutual funds. In November 2021, a panel of regulators led by the Treasury Department said that stablecoins should have a specific regulatory framework and be limited to issuance by banks.BUSD’s Growth in the MarketBUSD has become the world’s third-largest stablecoin, with a market cap of over $16 billion as of Sunday, according to CoinGecko data. Paxos also issues its own stablecoin, Pax Dollar, with a market cap of around $897 million.Kraken Agrees to Pay $30 Million in Penalties to SECThe SEC has been intensifying its crypto enforcement efforts against major market participants. Last week, Payward Inc.’s Kraken platform agreed to stop offering crypto staking services in the US and pay $30 million in penalties to the SEC for selling unregistered securities as yield products.Paxos Under Investigation by NYDFSPaxos is also currently under investigation by the New York Department of Financial Services, though the scope of the investigation is unclear.This news follows recent enforcement actions taken by the SEC against digital tokens, and the increasing scrutiny of cryptocurrency firms by government officials globally. Netizens are criticizing the SEC for planning to sue several crypto exchanges. They say that the SEC should have made clear rules from the beginning instead of regulating through enforcement. Unfortunately, the SEC is hurting investors more than crypto firms indirectly.
