Report: NYDFS Investigating Stablecoin Issuer Paxos Trust

Paxos Trust is reportedly being investigated by the New York State Department of Financial Services (NYDFS).

It is not known why the issuer of the Pax Dollar (USDP) and a Binance-branded BUSD stablecoins is being investigated, Bloomberg reported Thursday (Feb. 9).

The NYDFS began the probe recently, according to the report, which cited an unnamed source.

Paxos is regulated by NYDFS and said the two stablecoins it issues are backed by reserves held in cash and United States Treasuries, per the report.

Bloomberg reported that an NYDFS spokesperson declined to comment on the report, saying the regulator can’t comment on ongoing investigations, but said: “The department is in continuous contact with regulated entities to understand vulnerabilities and risks to consumers and the institutions themselves from crypto market volatility we are experiencing.”

The NYDFS and Paxos did not immediately reply to PYMNTS’ request for comment.

The news comes two days after Paxos took to Twitter to address “speculation” around its relationship with the U.S. Office of the Comptroller of the Currency (OCC).

“To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter,” the firm said in a Wednesday (Feb. 8) post on Twitter. “Paxos continues to work constructively with the OCC.”

To clarify speculation: Paxos has not been asked to withdraw its application for a national trust bank charter from the OCC, nor has it been denied the charter. Paxos continues to work constructively with the OCC.

— Paxos (@PaxosGlobal) February 8, 2023

The NYDFS has taken some actions around the cryptocurrency industry in recent weeks.

The regulator announced Jan. 4 that crypto exchange Coinbase had agreed to a $100 million settlement with New York State following an investigation into its compliance program and a finding of “significant failures” in the program.

“These failures made the Coinbase platform vulnerable to serious criminal conduct, including, among other things, examples of fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking,” the NYDFS said at the time.

About three weeks later, on Jan. 23, the NYDFS cautioned firms to segregate customers’ cryptocurrency assets from their own as it updated its regulations designed to protect consumers from insolvencies at digital asset companies.

“Today’s guidance reminds DFS-regulated virtual currency companies of our expectations regarding the safekeeping of customer assets,” NYDFS Superintendent Adrienne Harris said at the time.

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