- Paxos will delist BUSD after it received a Wells notice from the SEC over the matter
- The notice asked Paxos why it shouldn’t be sued for listing the unaudited stablecoin
- The move is the second major move by the SEC in its 2023 crypto clampdown
The Security and Exchange Commission (SEC) seems to have won another battle in its nascent war against the crypto space as Paxos announced that it will drop Binance’s BUSD stablecoin after attention from the regulator. The Wall Street Journal reported this morning that Paxos has delisted the coin following the issuing of a Wells notice last week regarding it, which the agency uses to “inform companies and individuals of a possible enforcement action”.
Paxos Violated Investor Protection Laws, Says SEC
The Wall Street Journal’s sources told the outlet over the weekend that Paxos Trust Co. was going to be sued by the SEC for “violating investor protection laws” relating to the listing of BUSD, which has never been externally audited. Binance claims that BUSD is fully backed by cash and treasury bills, although it admitted last month it acknowledged that past flaws in the management of its reserves had led to more than $1 billion in missing collateral at times.
Companies that receive Wells Notices are given the opportunity to submit a written response to the SEC and explain why the agency should not proceed with legal action. Receiving a Wells Notice doesn’t necessarily mean that the SEC will take enforcement action, with the final decision to authorize enforcement, whether through settlement or litigation, resting with the five commissioners of the SEC.
It seems that Paxos has decided to try and nip the problem in the bud by removing BUSD from its platform, although redemptions will still continue. Whether this will be enough to stave off the SEC’s attention remains to be seen.
National Bank Charter Application in Trouble?
Prior to this news last week there had been rumors that Paxos’s application for a National Bank Charter had been denied. The company applied for one in 2020 and had it conditionally approved in March 2021. This gave the company 18 months to complete its application, which would either result in it being denied or approved. This deadline had passed and Paxos has only commented to deny rumors that it has been asked to pull its applications:
To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.
— Paxos (@PaxosGlobal) February 8, 2023
The SEC’s action is the latest example of what looks to be a busy 2023 in the crypto sector, and there will be many entities, both registered and unregistered, that will be looking over their shoulders.