• The SEC issued a Wells Notice to Paxos, indicating that they are under investigation.
• The Wells Notice is used by the SEC to outline potential charges and allows the respondent to submit a written statement.
• The Wells Notice was given in reference to BUSD, Paxos’ stablecoin, alleging that it may be an unregistered security.
What Is A Wells Notice?
The Securities and Exchange Commission (SEC) can issue a Wells Notice when they have initiated or completed an investigation into an entity. This document outlines the substance of any potential charges and provides the respondent with the opportunity to submit a written statement before any action is taken. It was created as part of recommendations from the 1972 „Wells Committee“ which sought to review and assess the Commission’s enforcement policies and practices.
Paxos‘ Wells Notice
In February 2021, Paxos revealed that they had received a Wells Notice from the SEC regarding their stablecoin BUSD. This notice alleged that BUSD may be an unregistered security. As a result of this notice, Paxos halted all new token issuances for BUSD until further notice. Although there were no other allegations made against Paxos themselves, USDP-USD tokens (which are similar in nature) may also potentially be affected by this decision.
Implications Of The Investigation
This investigation could potentially have far reaching implications beyond just Paxos and BUSD if it is found that other dollar-collateralized stablecoins managed by Paxos also constitute unregistered securities according to SEC regulations. If this is ultimately found to be true, then these entities may need to take additional steps in order for their tokens to remain compliant with regulatory standards.
History Of The Wells Notice
The creation of the Wells Notice came as part of recommendations from William J Casey’s 1972 „Wells Committee“. This committee was established in order to review and assess existing enforcement policies and practices at the time. Although there is no legal requirement for regulators such as the SEC to provide prospective defendants with this opportunity before taking action, it has become common practice over time due its utility in allowing respondents time prepare their defense ahead of any possible litigation or enforcement actions taken against them by regulators such as the SEC .
Conclusion
The recent issuance of a Wells Notice by the SEC against Paxos indicates that their stablecoin BUSD may potentially constitute an unregistered security according to current regulatory standards. Although there were no other allegations made against PAXOS itself, other dollar-collateralized stablecoins managed and minted by PAXOS could also potentially fall into this category depending on how things progress during this ongoing investigation by regulators such as the SEC
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