It has been claimed that the New York State Department of Financial Services, often known as the NYDFS, received a complaint about Binance’s reserves from stablecoin issuer Circle prior to the exchange’s crackdown on BUSD.

Circle reportedly informed the New York Department of Financial Services (NYDFS) in an October 2022 complaint that Binance’s reserves were inadequate to hold the exchange’s tokens, presumably including the Binance USD stablecoin. The story was published on February 13 by Bloomberg (BUSD). The information was allegedly discovered by Circle staff through the use of blockchain data, a source familiar with the situation revealed.

Circle’s activities took place prior to preparations by the United States Securities and Exchange Commission to file a lawsuit against Paxos, alleging that BUSD was an unregistered security. The SEC planned to sue Paxos on the basis that BUSD was an unregistered security. On February 13, the New York Department of Financial Services (NYDFS) announced its own regulatory action, which consisted of an order to Paxos to “stop minting BUSD issued by Paxos” and a reaffirmation of the agency’s mandate that Tokens regulated by its framework must be fully backed by cash or cash equivalents.

Paxos issued a statement on February 13 in response to a lawsuit filed by the SEC stating that BUSD was “not a security under the federal securities laws.” The statement also included the following information: “BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in remote bankruptcy accounts.” Regarding this matter, we want to communicate with SEC staff, and if necessary, we are prepared to litigate vigorously.”

The cryptocurrency regulatory action was the most recent in the United States targeting cryptocurrency companies. On February 9, the SEC reached an agreement with Kraken to discontinue its staking services for US clients. This move was the latest in a series of regulatory actions affecting crypto businesses in the United States. Furthermore, the financial authority continues to argue with Ripple in pending litigation over XRP, in which it claims that the coins are securities that fall under its jurisdiction.