On February 21, Paxos stopped issuing new BUSD tokens after receiving a Wells Notice, a document provided by the SEC to entities under investigation.
The SEC may issue a Wells Notice outlining the nature of the claims the regulator intends to bring. In addition, respondents may submit written statements to the final decision maker. Although regulators are not legally required to issue Wells Notices, this is common SEC practice.
Wells Notice History
In 1972, SEC Chairman William J. Casey established a committee (led by John Wells and commonly known as the “Wells Committee”) to review and evaluate the Commission’s enforcement policies and practices.
The Wells Notice was produced as a result of the Commission’s recommendations. While there are no rules or regulations mandating that a prospective defendant be permitted to address a decision maker before filing an action, the Wells Notice provides an opportunity for the respondent to do so.
Paxos Wells Notification
In February, Paxos disclosed that the Securities and Exchange Commission (SEC) issued a Wells Notice earlier this month. The notice claimed that his BUSD, a Paxos stablecoin, was an unregistered security. This Wells notice is an important development. This indicates that the SEC has either initiated or completed an investigation into his BUSD, and enforcement action could be the next course of action.
In their disagreement over the decision, PAXOS wrote:
“Because BUSD is not a security under the federal securities laws, Paxos categorically disagrees with the SEC staff. This SEC Wells Notice pertains only to BUSD. is not clearly
In a statement, Paxos clarified that the Wells Notice will not affect the Pax Dollar (USDP-USD). However, it is worth noting that USDP and BUSD are essentially the same. That is, a dollar-backed stablecoin managed and minted by Paxos. The only major difference between the two is that BUSD relies on the Binance smart chain for most of its utility, while USDP is not affiliated with any particular blockchain.
The SEC may issue multiple Wells Notices. This is because they specifically identified the problem with Binance, as Grayscale claims, or because they need to be consistent in their actions. However, given that BUSD is primarily used on the Binance Smart Chain, it is also possible that the SEC has specific issues with Binance.
As stablecoins become more and more popular in the cryptocurrency world, the recent Wells Notice sent to Paxos by the Securities and Exchange Commission (SEC) should cause concern. It is not yet clear if this behavior is related to stablecoins in general or is specific to BUSD-heavy Binance, but there are other fiat-backed stablecoins unregistered. The question arises whether it could be considered a security. Other wells notices ”, dripping.
