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Circle Internet Financial, the second-largest stablecoin holder of USDC, is planning to go public via an IPO. But the SEC’s concerns about USDC could test USDC’s ambitious bid, Barron’s said, citing an SEC document.
The SEC’s corporate finance division has been in correspondence with Circle for nearly a year, according to the documents. The Commission asked Circle to disclose the risks of USDC being classified as a security and raised concerns about whether Circle would be considered an “investment company” and have to go through different registration processes.
If USDC were considered a security, Circle would have to register USDC and potentially become subject to investment company regulations, which would increase costs and regulatory requirements, Barron’s noted. This could result in Circle’s operating costs being higher. Additionally, this may prevent certain types of entities from trading on USDC.
If Circle is considered an investment company, it will be subject to closer SEC oversight, including requirements to file holdings reports and comply with certain operating restrictions that do not apply to regular operating companies.
Todd Phillips, a law professor at Georgia State University, told Barron’s: “If these were securities, even if Circle could operate them, the operating costs would be higher.”
Circle’s IPO plan, unveiled earlier this year, is the company’s second attempt. An initial bid targeting a listing in 2022 fell through due to an SEC investigation. The company said the IPO will proceed after the SEC’s review is complete, taking into account market conditions and other factors.
Previously, SEC Chairman Gary Gensler hinted that stablecoins backed by securities could be treated as securities. However, he did not specifically mention USDC in his remarks.
Coinbase, a prominent backer of Circle, said USDC is not a security. Notably, the SEC’s recent lawsuit against Coinbase, which accused Coinbase of selling 13 unregistered securities, did not include USDC.
Circle also argued in a court filing last September that stablecoins like USDC are not securities because people who purchase USDC do not expect any profit and the payments do not have “the characteristics of an investment contract.”
USDC is not the only stablecoin that is under the regulatory radar. PayPal’s stablecoin PYUSD and Ripple’s upcoming stablecoin Ripple USD (RLUSD) are also under SEC scrutiny.
PayPal said it received a subpoena from the SEC in November requesting documents related to PYUSD.
Ripple plans to launch stablecoins on XRPL and Ethereum, but the SEC has already seen this as evidence that Ripple may continue to violate securities laws.
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