© Reuters
By Ambar Warrick
Investing.com– The U.S. Securities and Exchange Commission intends to sue cryptocurrency firm Paxos Trust Co, which issues the Binance USD stablecoin, for allegedly selling unregistered securities, the Wall Street Journal citing people familiar with the matter.
SEC law enforcement staff issued a Notice from Wells to Paxos, a letter used by the agency to notify entities of potential enforcement action against them.
The regulator alleged that (BUSD) is an unregistered security and that Paxos breached investor protection laws by issuing the token.
A notice from Wells allows companies to respond in writing to the SEC and tell the commission why it shouldn’t sue. The five SEC commissioners must clear any further action against the company.
BUSD is a stablecoin that is issued by Paxos by licensing the Binance brand. Binance, the world’s largest cryptocurrency exchange, claims that the token is fully backed to have a 1:1 parity with the US dollar.
The token is the third-largest stablecoin in the world, behind Tether’s and Circle’s, with a market capitalization of around $16 billion.
The SEC’s action comes amid increasing scrutiny of cryptocurrency companies by U.S. regulators following the recent bankruptcy of FTX. The securities regulator recently reached a $30 million settlement with cryptocurrency exchange Kraken, which saw the latter scrap its staking program in the United States.
SEC Chairman Gary Gensler also said recently that the commission would review the potential risks posed by stablecoins.
Stablecoins play an important role in facilitating cryptocurrency exchanges, providing users with dollar equivalents that can then be used to execute trades on cryptocurrency exchanges. But the space has also faced growing accusations of fraud, not least due to a lack of clarity over the assets backing the space’s major players.
For example, , which runs the world’s largest stablecoin with a market capitalization of $65 billion, has come under increasing criticism for failing to perform a proper audit. While the company publishes quarterly attestations of its reserves, critics say these attestations do not constitute a full audit.
Potential regulatory action is another headwind for the cryptocurrency market, which is experiencing a steep price decline through 2022. Last year, the world’s largest cryptocurrency, , lost more than 60% of his value.