The U.S. Securities and Exchange Commission (SEC) enforcement division has issued a Wells notice to Paxos — The Wall Street Journal (WSJ) reported, citing anonymous sources.
The New York Department of Financial Services instructed Paxos Trust Co. — the issuer of stablecoin Binance USD (BUSD) — to halt any further creation of BUSD, according to the WSJ.
The Wells notice
A Wells notice is a formal notice the SEC issues to inform the recipient that it plans to bring enforcement actions against it.
The SEC plans to sue Paxos for allegedly violating securities and investor protection laws. BUSD is considered an unregistered security, according to the notice.
Paxos issued the 1:1 dollar-pegged stablecoin in partnership with Binance in September 2019. Since then, BUSD has grown to be the third-largest stablecoin and the seventh-largest cryptocurrency — with a market cap of $16.15 billion — according to CryptoSlate data.
What happens next
A Wells notice does not mean that the SEC will take enforcement action. The five commissioners of the SEC have to vote to authorize any enforcement litigation or settlement by the agency.
Paxos can submit a written response to the Wells notice and present its case as to why it should not be sued.
When the SEC nearly doubled its Crypto Assets and Cyber Unit in May 2022, it said that stablecoins would be an area of focus. Stablecoins are similar to bank deposits or money-market mutual funds, according to SEC Chairman Gary Gensler.
Article updated 09:10 GMT to add details.