SEC Ends Investigation Into Paxos, No Enforcement Action to Follow

The U.S. Securities and Exchange Commission (SEC) has concluded its investigation into Paxos Trust Company, the issuer of the Binance USD (BUSD) stablecoin, without recommending any enforcement action. Paxos announced on Thursday that it had received a formal termination notice from the SEC, marking the end of a regulatory scrutiny period that lasted over a year.

Paxos shared the news via Twitter, stating, “On Tuesday, we received a formal termination notice from the SEC stating that it will not recommend enforcement action against Paxos Trust Company.” The investigation had focused on BUSD, which Paxos issued under a licensing agreement with Binance.

The New York Department of Financial Services (NYDFS) had directed Paxos to cease minting BUSD early last year, effectively ending its official relationship with Binance. Despite the halt in operations, Paxos had been prepared to challenge any charges brought by the SEC. However, the regulator has remained silent on the conclusion of the investigation, with a spokesperson stating, “The SEC does not comment on the existence or nonexistence of a possible investigation.”

Paxos launched BUSD in 2019, pegging it to the dollar. The stablecoin’s market capitalization peaked at $16 billion before regulatory actions curtailed its growth. “Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws,” the company reiterated in a press release. “We believe this development will unlock a new wave of stablecoin adoption by leading global enterprises.”

Last year, the SEC had alleged that BUSD was a security in a lawsuit against Binance, accusing the exchange of marketing the stablecoin as having “profit-earning potential,” thus classifying it as an investment contract under the Howey Test. However, a federal judge dismissed charges related to the sale of BUSD last month. U.S. District Judge Amy Berman Jackson stated that the SEC did “not plausibly allege that Binance offered and sold BUSD as an investment contract,” allowing the lawsuit to proceed on other charges such as violations of anti-fraud provisions.

Industry reactions to the SEC’s decision have been largely positive. Juan Leon, a senior investments strategist at Bitwise, described the development as “another win for stablecoins as they see increasing traction globally.” Similarly, Jeremy Allaire, CEO of Circle, which issues the stablecoin USDC, tweeted his congratulations, noting, “Regulatory clarity that payment stablecoins are payment money and not securities is prevailing all around the world.”

The termination of the SEC’s investigation into Paxos is expected to have significant implications for the stablecoin market and broader crypto industry, potentially paving the way for increased adoption and regulatory clarity.