US SEC Plans To Sue Crypto Exchange Paxos Over Binance USD Token Security Violations: Report

There has not been any such enforcement action taken by the SEC against any big firm that issues stablecoin.

Wells notices are not the final statement about the possible action by the SEC.

The US Securities and Exchange Commission (SEC) has informed crypto exchange Paxos about its plans to sue the platform for allegedly being involved in violations of investor protection laws. An enforcement staff at the SEC issued a Wells notice to the firm according to people familiar with the matter, reported The Wall Street Journal. Wells notice is given to organisations to inform them about any future enforcement-related action against the firm. The current notice alleges that Paxos uses unregistered Binance USD (BUSD) for the purpose of issuing and listing.

Binance USD is a stablecoin. And it is linked to the dollar in a one-to-one ratio. In 2019, both Binance and Paxos announced their partnership to introduce it for public use. Meanwhile, BUSD is listed by Paxos-operated digital asset exchange itBit.

The Wall Street Journal report also noted that there is no clarity on the specifics of the SEC notice. It remains unclear if the notice is particularly about issuing of coins by the Paxo or about the listing of the coin.

A company spokesperson at Paxos said, "The company is not commenting on any individual matter."

On the other hand, Binance said Paxos issues and owns BUSD as well as licenses the brand. In an official statement, the company said, "We will continue to monitor the situation."

Meanwhile, any agency that is issued Wells notice by the SEC has the option to reply in writing. The agency can even ask why the law enforcement agency should not go ahead with the lawsuit.

Legally, Wells notices are not the final statement about the possible action by the SEC. For any such action, at least five commissioners at the law enforcement firm should vote to proceed with any related litigation settlement.

In recent times, the SEC has been emphasising more on all matters regarding crypto enforcement actions against big players in the cryptocurrency market.

For instance, earlier this month, Payward Inc.'s Kraken stopped to provide any crypto staking services in the US crypto market. It was also forced to pay about $30 million to the SEC as penalties.

Staking ensures that investors earn a yield by transferring their crypto tokens to any other crypto network on a temporary basis.

In the past, there has not been any such enforcement action taken by the SEC against any big firm that issues stablecoin. However, last year the agency stated that it would focus more on stablecoins and related areas.

BUSD is the world's third-largest stablecoin with over $16 billion global market cap, according to CoinGecko, as cited by the Wall Street Journal Report. Pasxos even has its own stablecoin named Pax Dollar with a global market cap of around $897 million.

Earlier, SEC Chairman Garu Gensler said that stablecoins have the potential to resemble bank deposits. A Treasury Department panel of regulators in November 2021 said that stablecoins must have a particular framework for regulations.

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