Paxos to face SEC lawsuit for allegedly violating investor protection laws

Paxos to face SEC lawsuit for allegedly violating investor protection laws

The United States Securities and Exchange Commission (SEC) has alerted crypto stablecoin issuer Paxos Trust Co. that it plans to file a lawsuit against the firm for allegedly breaking investor protection laws in connection with Binance USD (BUSD).

Paxos is the issuer of BUSD and Pax Dollar (USDP) tokens, the latter of which was launched in 2018. It is also behind the digital investment exchange itBit, which came out in 2012, the same year Paxos was established.

According to a report by Wall Street Journal on February 12, the SEC delivered Paxos a Wells Notice, a document to inform firms of impending enforcement action. The SEC claims that BUSD is an unregistered security.

After receiving a Wells Notice, a potential defendant has a month to react with a legal brief called a Wells Submission, which should include arguments showing why the charges should not be pursued against the defendant.

Binance had previously admitted last month that it had not always kept the necessary balance to support Binance-Peg BUSD (PBUSD), a wrapped form of BUSD available on networks other than Ethereum.

Binance said there was a “mismatch in backing Binance-Peg BUSD with BUSD” after Bloomberg reported concerns about how PBUSD’s backing was displayed.

Although there were problems with “the publicly viewable data,” the cryptocurrency exchange said that withdrawals were not impacted.

The news came after CoinDesk reported a few days prior that the New York Department of Financial Services was investigating Paxos. However, the nature of this probe remains unclear.

The lawsuit also came just after the SEC settled charges with cryptocurrency exchange Kraken, where, allegedly, its staking services covered an issue of unregistered securities.

Under the terms of the settlement, Kraken ceased all of its staking activities in the United States without admitting or denying the allegations.

After the action, SEC chief Gary Gensler urged cryptocurrency companies to “follow the law.”

Internally, the SEC was criticised for how it handled Kraken. For example, Hester Peirce, a commissioner at the SEC, said that the SEC’s actions were neither efficient nor fair.