SEC Ends BUSD Stablecoin Investigation Without Enforcement Action, Says Paxos

Stablecoin issuer Paxos said Thursday that an investigation conducted by the U.S. Securities and Exchange Commission (SEC) has concluded, with no enforcement action on the horizon.

“On Tuesday, we received a formal termination notice from the SEC stating that it will not recommend enforcement action against Paxos Trust Company,” the firm said on Twitter (aka X), adding that the agency’s investigation had centered on BUSD, its Binance-branded stablecoin.

Paxos stopped minting BUSD at the direction of the New York Department of Financial Services early last year. Marking the end of the company’s official relationship with Binance, Paxos signaled that it was prepared to fight any charges brought by the SEC at the time. The SEC has yet to comment publicly on the claimed end of the investigation.

"The SEC does not comment on the existence or nonexistence of a possible investigation," the regulator said in a statement to Decrypt.

Stemming from a licensing agreement with crypto’s largest exchange, Paxos had owned and operated its BUSD stablecoin since 2019. Pegged to the price of the dollar, the stablecoin’s market capitalization swelled to $16 billion before regulators put the kibosh on it.

“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws,” Paxos said in a press release. “We believe this development will unlock a new wave of stablecoin adoption by leading global enterprises.”

The SEC had alleged that Paxos’ BUSD stablecoin was a security in a lawsuit brought against Binance last year, pressing the exchange amid a string of other enforcement actions. However, charges related to the sale of BUSD were dismissed by a federal judge late last month.

The regulator took issue with the way the stablecoin was being marketed, arguing that Binance’s talk of BUSD’s “profit-earning potential” made the stablecoin an investment contract, and therefore a security under the Howey Test, according to court filings.

The SEC did “not plausibly allege that Binance offered and sold BUSD as an investment contract,” U.S. District Judge Amy Berman Jackson wrote in a recent decision, which let the SEC’s lawsuit proceed on several other charges, such as violations of anti-fraud provisions.

On Twitter, Juan Leon, a senior investments strategist at the asset manager Bitwise, described Thursday’s revelation as “another win for stablecoins as they see increasing traction globally.” 

“Congrats,” wrote Jeremy Allaire, the CEO of Circle, which issues the stablecoin USDC. “Regulatory clarity that payment stablecoins are payment money and not securities is prevailing all around the world.”

Edited by Andrew Hayward