On Thursday, Paxos announced that it had won a victory against the Securities and Exchange Commission (SEC) after the latter indicated that it would not pursue charges in the BUSD case. However, the sequence of events raises questions. Was BUSD unfairly sacrificed?
SEC Backtracks on Paxos in BUSD Case
Last year, the Securities and Exchange Commission (SEC) made headlines when it took on BUSD, Binance's flagship stablecoin issued by PaxosWhile the cryptocurrency exchange was forced to disown the asset, the stablecoin issuer was served with a Wells Notice by the Commission, suggesting future legal action.
And for good reason, the whole challenge for the SEC was to succeed in proving that BUSD was an unregistered securitywhich would have opened the way for him to attack Paxos, which strongly denied the allegations.
💡 What is security?
However, in a letter this week from Jorge Tenreiro, the acting head of the SEC’s cyber and cryptoassets unit, Paxos learned that it would not be prosecuted by the federal agency. At the very least, the person indicated that his department had no intention of recommending legal action to the SEC:
“Paxos prevails in SEC investigation of BUSD stablecoin” 👏
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).
View the letter and our… pic.twitter.com/8kjysfsPg3
— Paxos (@Paxos) July 11, 2024
In a statement sent immediately afterwards, the company expressed its relief:
We are proud of our continued advocacy for stablecoin digital assets and that the SEC staff has decided not to pursue charges against Paxos related to BUSD.
For now, Paxos thus appears to have been cleared in this affair.although the course of events raises many questions.
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Was BUSD Unfairly Sacrificed?
As the SEC has done with many cryptocurrencies, BUSD has been accused of being a security in the name of the famous Howey test. Yet, it was on the basis of this same test that Judge Amy Berman Jackson discredited the SEC's approach to BUSD in a memorandum dated June 28.
And for good reason, on page 49 of this long document, one passage in particular is rich in meaning:
“With respect to the ‘common enterprise’ element, all the SEC can say is that ‘the proceeds from investors’ purchases of BUSD were allegedly pooled into reserves, and Binance earned 50% of the investment returns on those pooled assets.’ But it does not allege that coin holders shared in those returns in any way. For these reasons, the Court finds that the complaint does not plausibly allege that Binance offered and sold BUSD as an investment contract under the Howey test.”
👉 Also in the news — BitMEX pleads guilty to violating US Bank Secrecy Act
If this is the case of a new defeat for the SECit is clear, however, that the damage has already been done. Indeed, BUSD has since been removed from the stablecoin landscape, giving credence to voices accusing the government agency of slowing down innovation.
For its part, Binance does not yet seem to have reacted to the news.
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Sources: Paxos, Memorandum
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Since 2021, I have devoted my free time to seriously training myself on cryptocurrencies in order to acquire as much knowledge and credibility as possible. I often have the opportunity to conduct interviews with influential figures in the blockchain industry. I also conduct in-depth analyses on Web3 themes to offer exclusive content to Cryptoast readers.
Vincent Maire
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