In the ongoing Paxos versus SEC feud, the recent step from the firm comes as a major move. Paxos published a letter on Tuesday, issued by Charles Cascarilla, the firm’s CEO highlighting the company’s ill-fated Binance USD (BUSD) stablecoin.
The entire Paxos fiasco began with the New York Department of Financial Services (NYDFS) investigating the company regarding the issuance of the third-largest stablecoin, BUSD. The Securities and Exchange Commission (SEC) issued the “Wells notice” to Paxos regarding its BUSD.
Notably, the Wells notice seeks to inform it of a possible enforcement action. The notice enables firms to respond to the regulator with an explanation as to why the agency shouldn’t proceed with legal action. On February 13th, the firm acknowledged the notice; however “categorically disagreed with the regulator because BUSD is not a security under the federal securities laws.”
Now, Cascarilla writes that:
Under [the Howey and Reves tests], BUSD does not meet the criteria to be a security. Our stablecoins are always backed by cash and equivalents–dollars and US Treasury bills, but never securities.
Sources reveal that the Howey Test defines many investment contracts as security, whereas the Reves test uses a “family resemblance” test to determine whether an asset is a security. As such, Paxos aims to disprove that BUSD is a security in a very broad sense.
The CEO mentions that Paxos is involved in “constructive discussions” with the SEC and that these discussions occur privately. He said that the firm would share more information when it is possible to do so.
Further, Cascarilla says that if required, Paxos may “defend [its] position in litigation,” echoing earlier statements in which the company said it will “vigorously litigate if necessary.” According to him, the firm going ahead and defending itself will make it one of the few other high-profile crypto entities to challenge the SEC.
According to Cascarilla, Paxos has facilitated over $2.8 billion in BUSD redemptions without disrupting the crypto market. In the letter, he also highlighted that Paxos is engaging with the regulators on the subject. It is pursuing an application with the Office of the Comptroller of the Currency (OCC), aiming to obtain a bank charter and an application with the SEC through which it intends to act as a clearing agency.