New York’s top financial regulator is investigating stablecoin issuer Paxos – and, according to a new report, it was rival stablecoin issuer Circle that sounded an alarm.
Bloomberg reported on Monday that Circle tipped off the New York Department of Financial Services (NYDFS) in the fall of 2022, complaining that blockchain data revealed Binance did not have enough reserves to back up the BUSD tokens it had issued through Paxos. Bloomberg cited a person familiar with the matter.
The revelation comes several days after CoinDesk initially reported that NYDFS was investigating Paxos.
On Monday, an NYDFS spokesman told Reuters that Paxos was not administering BUSD in a “safe and sound” manner, and had thus “violated its obligation to conduct tailored, periodic risk assessments and due diligence refreshes of Binance and Paxos-issued BUSD customers to prevent bad actors from using the platform.”
Paxos’ regulatory worries don’t end with NYDFS’ ongoing investigation. On Sunday, it was reported the U.S. Securities and Exchange Commission (SEC) planned to sue Paxos for issuing BUSD as an unregistered security.
A representative for Circle did not immediately respond to CoinDesk’s request for comment.
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