U.S. Securities and Exchange Commission building, Washington DC, USA, 25 June 2018. Shutterstock
Stablecoin issuer Paxos Trust Company “categorically disagrees” with the U.S. Securities and Exchange Commission (SEC) that Binance USD (BUSD) is an unregistered security, the company said in a press release on 13 February.
In its announcement, Paxos acknowledged that it had received a Wells Notice — a letter that informs companies of planned enforcement action — from the U.S. securities regulator, alleging that the BUSD stablecoin is a security that Paxos failed to register. The company, however, said it “categorically disagrees” with the SEC that BUSD constitutes a security, and that it is prepared to “vigorously litigate” this issue if necessary. Paxos wrote in the press release:
“Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws. BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.”
The company also noted that the Wells Notice specificaly targeted its BUSD offering, and had nothing to do with any other part of Paxos’ business. The company, however, has agreed to stop minting new BUSD tokens starting 21 February at the direction of the New York Department of Financial Services (NYDFS), though all existing BUSD will remain fully backed and redeemable until at least February 2024.
The financial regulator noted that it issued the order due to “several unresolved issues related to Paxos’ oversight of its relationship” with Binance and the BUSD stablecoin. A “person familiar with the matter” told Bloomberg that the NYDFS received a complaint from rival stablecoin issuer Circle in late 2022, claiming that Binance’s reserves were insufficient to support its various tokens, including the BUSD stablecoin.