SEC to Sue Crypto Trust Co. Paxos Over Binance Stablecoin: WSJ

The U.S. Securities and Exchange Commission (SEC) intends to sue stablecoin issuer Paxos, which is behind the Pax dollar (USDP) and Binance USD (BUSD) tokens, over the latter stablecoin, the Wall Street Journal reported Sunday.

An SEC spokesperson told CoinDesk the commission does not comment on the existence or nonexistence of a possible investigation.

The SEC is alleging that BUSD is an unregistered security, according to the report. The news comes days after CoinDesk reported Paxos is under investigation by the New York Department of Financial Services, although the scope of NYDFS' investigation is unclear.

BUSD is a Binance-branded stablecoin issued by Paxos, a New York-regulated trust company that also enjoys a provisional charter from the Office of the Comptroller of the Currency, a federal bank regulator.

Following the news of SEC's intentions, Paxos said it would halting the minting of new BUSD tokens.

A Binance spokesperson told CoinDesk: “BUSD is a stablecoin wholly owned and managed by Paxos. As a result, BUSD market cap will only decrease over time. Paxos will continue to service the product, manage redemptions, and will follow-up with additional information as required. Paxos also assured the funds are safe, and fully covered by reserves in their banks.

“Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from further undue harm."

Sunday's news comes right after the SEC settled charges with crypto exchange Kraken, when the regulator alleged its staking services were an offering of unregistered securities. Kraken did not admit or deny the charges under the terms of the settlement, but did shut down all of its U.S. staking programs.

Binance acknowledged last month that it had not always maintained the proper balance to back Binance-Peg BUSD (PBUSD), a wrapped version of BUSD offered on non-Ethereum networks that is backed by BUSD. After Bloomberg reported that there were issues with how PBUSD's backing was displayed, Binance said "on occasion in the past, there was a timing mismatch in backing Binance-Peg BUSD with BUSD." The crypto exchange claimed in a blog post that while there were issues in "the publicly viewable data," user redemptions were not affected.

UPDATE (Feb. 13, 2023 0:35 UTC): Updates with Binance blog post from January in final paragraph.

UPDATE (Feb. 13, 08:25 UTC): Adds Binance comment.

UPDATE (Feb. 13, 11:35 UTC): Adds reference and link to Paxos halting mining of BUSD tokens.