SEC Set to Sue Paxos Over Binance Stablecoin, BUSD

The U.S. Securities and Exchange Commission (SEC) intends to file a lawsuit against Paxos, the stablecoin issuer behind tokens Pax Dollar (USDP) and Binance USD (BUSD), The Wall Street Journal reported on Sunday.

An SEC spokesman said that the commission would not comment on the existence of a possible investigation.

The SEC reportedly claims BUSD is an unregistered security. The news comes days after reports that Paxos is under investigation by the New York Treasury Department, though the scope of the NYDFS probe is unclear.

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

The news comes after the SEC reached a settlement with cryptocurrency exchange Kraken when regulators said its staking service was an unregistered securities offering. Under the terms of the settlement, Kraken has neither admitted nor denied the allegations, but has suspended all of its staking programs in the United States.

Binance admitted last month that it hasn’t always kept the right balance to support Binance-Peg BUSD (PBUSD), a packaged version of BUSD offered on a non-Ethereum network powered by BUSD. After Bloomberg reported issues with PBUSD support, Binance stated that “there have been times in the past when Binance-Peg BUSD support has not coincided with BUSD timing.” The cryptocurrency exchange claimed in a blog post, that “publicly visible data” was an issue, but user redemptions were not affected.

Is Paxos BUSD a Security?

Paxos partnered with Binance in 2019 to launch the dollar-pegged exchange-branded stablecoin, which is currently the third-largest stablecoin in the world. The crypto community claims it is a dig at Binance as the asset is clearly a stablecoin and not a security.

The SEC didn’t say whether it had issues with the company that minted the tokens or with Paxos’ listing of BUSD. SEC Chairman Gary Gensler has previously commented that stablecoins may resemble bank deposits or money market funds, but now he appears to be confusing them with securities resembling company stocks.

Industry leaders are warning that the SEC is attempting to ban staking by US retail investors, which will push services and trading overseas (as was the case with FTX).