SEC Issues Wells Notice to Paxos: Enforcement Action May be Next
• The SEC issued a Wells Notice to Paxos, indicating that they are under investigation for their BUSD stablecoin.
• A Wells Notice outlines the charges the SEC intends to bring and allows the respondent to submit a statement in defense.
• Paxos disagrees with the decision and is confident that BUSD is not a security under federal securities laws.
What is a Wells Notice?
The Wells Notice is a document created by recommendations from the SEC’s committee (the „Wells Committee“) in 1972. It is issued to entities under investigation by the SEC, outlining any potential charges and allowing them to submit a written statement in their defense before an action is taken.
History of the Wells Notice
In 1972, SEC Chairman William J. Casey established a committee (led by John Wells) to review and assess the Commission’s enforcement policies and practices. The Wells Notice was created as a result of the committee’s recommendations, although there is no legal requirement for it to be issued.
Paxos Receives a Wells Notice
On February 21, Paxos halted issuance of new BUSD tokens after receiving a Wells Notice from the SEC, alleging that BUSD was an unregistered security. This indicates that an investigation has either been initiated or completed by the regulator, and enforcement action may follow next course of action.
In response to this news, Paxos stated that they disagree with the decision and believe that BUSD is not considered a security under federal securities laws. Additionally, USDP will not be affected since it operates similarly but on different blockchains than BUSD does on Binance Smart Chain.
The Wells Notice issued by the SEC against Paxos shows how regulations are changing as digital assets emerge in mainstream finance. While this case may cause some uncertainty among investors in digital assets like stablecoins, it should also serve as an example of how companies should ensure compliance with all applicable rules and regulations when developing new products or services related to digital assets involving U.S citizens or entities before launching them into production use cases or markets