Paxos announced Thursday that the SEC has concluded its investigation into its Binance-branded product.
The U.S. Securities and Exchange Commission (SEC) has decided to drop its investigation into Paxos, a New York-based issuer of stablecoins, with no enforcement action.
“On Tuesday, we received a formal termination notice from the SEC stating that it will not recommend enforcement action against Paxos Trust Company in the investigation of Binance USD (BUSD),” the stablecoin firm wrote on X.
Under the direction of the New York Department of Financial Services, Paxos ceased issuing BUSD early last year. The event marked the conclusion of the company’s formal partnership with leading crypto exchange Binance. At the time, Paxos also indicated readiness to battle any allegations presented by the SEC.
Paxos’ BUSD Launch
Paxos first introduced BUSD in collaboration with Binance in September 2019. The stablecoin quickly emerged as one of the prominent players in the market due to its integration with Binance. Paxos’ product offerings also include a cryptocurrency brokerage service, asset tokenization services, and settlement services.
The SEC claimed that Paxos’ BUSD stablecoin was a security in a lawsuit filed against Binance last year. The SEC applied pressure on the exchange amid a series of other regulatory actions. However, a federal judge dismissed the charges concerning the sale of BUSD late last month.
SEC Drops BUSD Case
According to court documents, the SEC objected to the marketing approach of the stablecoin. The agency argued that Binance’s promotion of BUSD’s “profit-earning potential” classified the stablecoin as an investment contract and, thus, a security under the Howey Test.
However, 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.”
The judge allowed the SEC’s lawsuit to move forward on several other allegations, including breaches of anti-fraud provisions but the regulator has decided not to carry on with the case.
Paxos believes the victory will unlock future adoption for stablecoins.
“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws. We believe this development will unlock a new wave of stablecoin adoption by leading global enterprises,” the firm said.
Speaking on the development, Juan Leon, a senior investment strategist at Bitwise, an asset management firm, tagged the news as another victory for stablecoins, which are gaining more acceptance globally.
Meanwhile, this is not the only time the SEC has dropped its case against a crypto entity. Last month, the securities watchdog completed its investigation into Ethereum 2.0. The announcement revealed that the SEC will not pursue allegations that the sales of ETH constitute securities transactions.
