SEC said to be investigating if issuing stablecoins violates investor protection laws

As regulators continue ramping up scrutiny of the cryptocurrency industry, the U.S. Securities and Exchange Commission is said to be investigating whether stablecoins are issued in violation of investor protection laws. Last week, stablecoin issuer Paxos Trust was ordered by the New York Department of Financial Services to stop minting BUSD ( BUSD-USD ). Also, the SEC is looking to sue Paxos over breaching investor protection laws. The regulator is yet to take a final call on the charges, but an SEC lawsuit over BUSD will be a significant hit to the crypto industry. However, securities lawyers told the Wall Street Journal that the SEC may find it difficult to win a lawsuit over stablecoins as users of such tokens don't expect profits from their holdings. "In your classic stablecoin… the profit is kept by the house," Timothy Spangler, partner at Dechert LLP, told WSJ. However, "regulators are well within their jurisdiction to look under the hood," he added. Another potential roadblock for any SEC case is the fact that the Commodity Futures Trading Commission and the NYDFS labeled tether ( USDT-USD ) and BUSD ( BUSD-USD ) as "virtual currencies". According to lawyers, this could result in confusion when deciding which laws are applicable. Regulators have two Supreme Court tests by which they can classify cryptos as securities - Howey and Reves. "We believe our stablecoins are unequivocally not securities under either Howey or Reves, and we look forward to continuing to work privately with federal regulators to make this case," a Paxos spokeswoman told WSJ. SA author Mike Fay believes if BUSD ( BUSD-USD ) is found to be an unregistered security, other stablecoins could also be termed the same as their minting mechanisms are all very similar .