The Securities and Exchange Commission (SEC) is reportedly planning to file a lawsuit against Paxos Trust Company, a New York-based crypto asset trust firm, over its role in the issuance of a stablecoin backed by Binance, according to a report from the Wall Street Journal.
The SEC has been investigating the relationship between Paxos and Binance, the world’s largest cryptocurrency exchange, as part of a broader crackdown on the crypto industry. The agency has expressed concern that the stablecoin issued by Paxos, which is pegged to the U.S. dollar, could be classified as a unregistered security under U.S. law.
The SEC claims that BUSD is an unregistered security and is suing it's issuer Paxos 🚩
To be considered a security, the Howey Test is used… I don't think BUSD meets the criteria, it's a damn stablecoin!?
Seems more like a shot at Binance, than anything else. pic.twitter.com/9sAuys5GY7
— tedtalksmacro (@tedtalksmacro) February 13, 2023
The Potential Consequences of Classifying the Stablecoin as a Security
If the SEC were to classify the stablecoin as a security, it would be subject to strict regulatory oversight, which could undermine its usefulness as a means of exchange in the crypto market. It could also set a precedent for other stablecoin issuers, which may be forced to comply with onerous reporting and disclosure requirements.
Paxos, which is regulated by the New York State Department of Financial Services, has stated that it has been working closely with regulators to ensure that its stablecoin complies with all applicable laws and regulations.
Increased Regulatory Scrutiny of the Crypto Industry
The news of the SEC’s impending lawsuit comes as U.S. authorities are scrutinizing the crypto industry, which has grown rapidly in recent years. Regulators are concerned that the lack of oversight and transparency in the sector could lead to fraud and other illegal activities and are taking steps to ensure that crypto companies are operating within the law.