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Another report suggests that the US SEC is planning to sue Paxos for the sale of BUSD stablecoins as unregistered securities.
In a first major crackdown on the stablecoin market, the New York Department of Financial Services (NYDFS) has asked Paxos Trust Co. to stop issuing the Binance USD (BUSD) stablecoin on an immediate basis.
BUSD is entirely owned and managed by Paxos. With the NYDFS order, Paxos will stop any further issuance. However, it will continue to service the product and manage redemptions through 2024. Both – Binance and Paxos – have assured that the funds are completely SAFU and fully covered by the reserves in their banks.
Last week, the news broke out that NYDFS has started probing Paxos. After the recent action by NYDFS, Paxos announced that it will seize and further issuance of BUSD stablecoins starting February 21. As said, the company still plans to honor BUSD redemptions through February 2024. In its announcement, Paxos noted:
“New and existing Paxos customers will be able to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP), a regulated US dollar-backed stablecoin also issued by Paxos Trust.”
Paxos further went on to state that its native stablecoin USDP and pax gold (PAXG) remain unaffected by the NYDFS order. Binance chief Changpeng Zhao also commented on the developments adding:
“Binance will continue to support BUSD for the foreseeable future. We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly. eg, move away from using BUSD as the main pair for trading, etc.”
SEC to Sue Paxos
Another report by the Wall Street Journal (WSJ) earlier this week noted that the US Securities and Exchange Commission (SEC) is planning to sue Paxos for issuing and supporting the trading of BUSD stablecoin.
The SEC enforcement staff has issued a letter – Wells notice – which notes that the Binance USD stablecoin constitutes an unregistered security. Paxos can submit its response to the Wells notice explaining why the SEC shouldn’t proceed with a lawsuit.
The Wells notices don’t bring any finality to the enforcement action. All five SEC Commissioners have to vote to authorize any enforcement settlement. commenting on the SEC’s plans of suing Paxos, CZ said:
“On the alleged SEC vs Paxos lawsuit, I have no information about it, other than public news articles. The lawsuit is between the US SEC & Paxos.I am not an expert on US laws. IF BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such.”
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