The U.S. Securities and Exchange Commission (SEC) is potentially taking legal action against Paxos, as reported by The Wall Street Journal (WSJ).

The SEC enforcement division has issued a Wells notice to Paxos, indicating its intention to bring enforcement actions against the company for alleged violations of securities and investor protection laws.

At the center of this potential lawsuit is Paxos-issued stablecoin Binance USD (BUSD), which the SEC views as an unregistered security.

Binance USD was created in partnership with Binance in September 2019, and has since grown to become the third-largest stablecoin and the seventh-largest cryptocurrency, with a market cap of $16.15 billion, according to data from CryptoSlate.

It’s important to note that a Wells notice is not a guarantee that the SEC will take enforcement action. The final decision rests with the five commissioners of the SEC, who must vote to authorize any enforcement litigation or settlement by the agency.

Paxos has the opportunity to submit a written response to the Wells notice and present its case for why it should not be sued. The company may argue that BUSD is not a security and does not require SEC registration.

The SEC’s focus on stablecoins was highlighted when it nearly doubled the size of its Crypto Assets and Cyber Unit in May 2022.

According to SEC Chairman Gary Gensler, stablecoins are similar to bank deposits or money-market mutual funds and will be an area of focus for the SEC.