Paxos Faces Lawsuit from SEC over BUSD Investor Protection Violations

UTC by Tolu Ajiboye · 3 min read
Paxos Faces Lawsuit from SEC over BUSD Investor Protection Violations
Photo: Depositphotos

Stablecoin issuer Paxos recently received a lawsuit notice from the SEC regarding indiscretions linked to the BUSD stablecoin.

Blockchain company Paxos is currently facing a lawsuit from the Securities and Exchange Commission (SEC) over the Binance USD (BUSD) token. According to reports, the regulator informed Paxos of its intention to sue the stablecoin issuer for violating investor protection laws regarding BUSD.

The SEC, which has been stepping up its enforcement of major crypto players, recently issued a Wells Notice to Paxos. According to inside sources, this notice alleges that the Paxos-issued and listed Binance USD is an unregistered security. However, whether the SEC notice specifically relates to Paxos’ BUSD issuance, listing, or both, remains unclear.

The Wells Notice allows Paxos up to 30 days to issue a response, typically known as a Wells Submission. This is a legal brief that would potentially argue why the prospective defendants should not face such charges. However, Paxos remains mum on the development. A spokeswoman for the New York-based financial institution and blockchain tech specialist suggested it would not comment on “any individual matter.”

Meanwhile, a Binance spokesperson also weighed in on the impending SEC BUSD lawsuit against Paxos. According to this company representative, Binance licenses its brand for Paxos, even though BUSD is a Paxos-issued and owned product. The spokesperson also mentioned that the New York Department of Financial Services regulates Paxos, adding that BUSD is a stablecoin with a 1 to 1 backing. Emphasizing the need for stablecoins, the spokesperson explained:

“Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people across the globe. We will continue to monitor the situation, [in the meantime], our global users have a wide array of stablecoins available to them.”

SEC BUSD Lawsuit Notice to Paxos is Part of Broader Enforcement Efforts Against Crypto Firms

The SEC’s notice to Paxos is part of a larger effort to intensify enforcement and compliance requirements by crypto market participants. For instance, the regulatory body reached a compliance agreement with crypto exchange Kraken last week. The San Francisco-based company agreed to halt its crypto staking services in the US and also pay a $30 million fine. Furthermore, Kraken would neither accept nor deny the SEC’s claims as part of the settlement’s terms.

Speaking on the Kraken settlement last week, SEC Chair Gary Gensler said:

“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens, need to provide the proper disclosures and safeguards required by our securities laws.”

In addition, Gensler noted that the Kraken conclusion should serve as a warning to the crypto marketplace. According to the SEC Chair, all “staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”

However, the SEC came under fire from its people for handling the Kraken case. Last week Friday, Commissioner Hester Peirce described the regulator’s conduct as an inefficient and unfair way of regulating. According to Peirce, the SEC shut down a program that has immensely benefited people.

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Tolu Ajiboye
Author Tolu Ajiboye

Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.

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