Paxos Facing Regulatory Action: SEC Issues Wells Notice and NYDFS Orders Halt on BUSD Minting

Written by Johnson Philip

Paxos, a New York-based fintech firm, has been notified by the U.S. Securities and Exchange Commission (SEC) of potential violations of investor protection laws, as reported on February 12, 2023. In response, Paxos announced that it will cease minting BUSD and terminate its partnership with the Binance-backed stablecoin by February 2024. 

According to sources cited by the Wall Street Journal (WSJ), the U.S. Securities and Exchange Commission (SEC) is planning to file a lawsuit against Paxos for alleged violations of investor protection laws. It is reported that Paxos has received a Wells Notice from the SEC, indicating a possible lawsuit. The notice alleges that Binance USD, the stablecoin managed and issued by Paxos, is considered an unregistered security.

The report was published by three reporters from the Wall Street Journal (WSJ) and both Paxos and Binance were contacted for comment. Binance informed the WSJ that the stablecoin operates under its licensed brand, while Paxos is responsible for issuing and managing the dollar-pegged asset.

A representative from Paxos declined to comment on the matter when reached by the reporters. This news comes after reports of an investigation by the New York State Department of Financial Services (NYDFS), which was first disclosed by Nikhilesh De of Coindesk on February 9th.

Paxos has a rich history, having been established in 2012 under the name Itbit. In 2015, the New York Department of Financial Services (NYDFS) granted the company a limited-purpose trust charter, leading to its rebranding as Paxos Trust Company.

Paxos is the custodian of three stablecoins: pax dollar (USDP), Binance USD (BUSD), and pax gold (PAXG). USDP currently has a market cap of approximately $898.16 million, while BUSD’s market value is estimated at around $16.1 billion.

PAXG has a market cap of approximately $492 million. Over the past year, PAXG’s supply has decreased by 3.1%, while USDP’s supply has fallen by 15.71%. Year-to-date, BUSD’s circulating supply has dropped by 9% but saw an increase in supply during mid-2022.

Paxos to Stop Minting Binance Stablecoin

In the past month, 5 billion BUSD was redeemed within 24 days. When questioned by the Wall Street Journal (WSJ) about the potential SEC charges against Paxos, Binance stated that they will “continue to monitor the situation.” So far, the SEC, being the top securities regulator in the country, has not taken any enforcement action against stablecoin issuers. 

The Wall Street Journal (WSJ) reported further on Sunday that the New York Department of Financial Services (NYDFS) has instructed Paxos to cease the issuance of BUSD. Paxos confirmed in an official statement that it will no longer mint the stablecoin and will end its association with it by the year 2024.

The company mentioned that it received the directive from the New York regulator and has been collaborating closely with them. The press release stated, “BUSD will continue to be fully supported by Paxos and redeemable for onboarded customers until at least February 2024.

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