SEC Closes BUSD Inquiry

Paxos disclosed the latest development in a post on X, stressing that the U.S. Securities and Exchange Commission (SEC) quietly closed its investigation into the Binance USD (BUSD) stablecoin. They further announced the update in an official press release on Thursday.

The termination of the investigation further bolsters the crypto industry's pursuit of regulatory clarity. Notably, the industry has continued to grapple with regulatory uncertainty and a slew of enforcement actions from the SEC.

Details of the Inquiry

In a letter from SEC's acting head of crypto assets and cyber unit, Jorge Tenreiro, on July 9, the agency informed Paxos that it would not recommend enforcement action.

The decision comes a year after the Gary Gensler-led SEC sent Wells notice to indicate possible enforcement action alleging illegality over the dollar-backed BUSD stablecoin that Paxos issued in partnership with Binance.

Paxos downplayed the allegations, noting that the token is not a security and is 1:1 dollar-denominated reserves. The prolonged inquiry raised concerns within the crypto industry and aggravated the call for regulatory clarity.

"The latest development will help unlock a widespread wave of stablecoin adoption by global enterprises," Paxos said in its press release.

Impact on the Crypto Industry

Paxos' strategy head, Walter Hessert, hails the investigation's closure as bringing renewed focus to the pursuit of enterprise partnerships. Concluding the inquiry is a monumental development at a time when the stablecoin segment is witnessing progressive growth globally.

To Paxos, the termination is timely days after securing approval from the Monetary Authority of Singapore (MAS) to offer Singapore-compliant stablecoins.

Meanwhile, the abandoned inquiry sets the stage for clarity in the stablecoin segment and the larger crypto scene. The securities regulator alleged Paxos' BUSD stablecoin, a security in the charge against Binance last year.

Legal Perspective

The SEC argued in court filings that BUSD satisfied the investment contract requirement and was thus a security under the Howey Test. Nonetheless, a federal judge dismissed the charges relating to the BUSD sale late last month.

The SEC's move to halt the inquiry into Paxos follows Judge Amy Jackson's June 28 ruling. The judge observed that the SEC failed to plausibly allege Binance's offer to sell BUSD as an investment contract, holding that it is not a securities offering.

Industry Reactions

Circle chief executive Jeremy Allaire hails Thursday's revelation as confirmation that payment stablecoins are payment money. Also, a recent X post by Bitwise investment strategist Juan Leon considers Paxos' revelation a legal victory for stablecoins as they realize global traction.