Paxos Trust Company has agreed to pay $48.5 million to settle charges brought by the New York Department of Financial Services (NYDFS) over compliance failures tied to its partnership with Binance.
The regulator accused Paxos of not conducting adequate due diligence when it teamed up with the crypto exchange to issue Binance USD (BUSD), once one of the largest stablecoins in the market.
The agreement, finalised on 7 August, puts an end to a long-running legal dispute over the now-defunct BUSD token.
While Paxos was not charged with fraud, the case focused on its internal controls and whether the company followed anti-money laundering and consumer protection requirements in its dealings with Binance.
Partnership began in 2020, with BUSD marketed as regulated
Paxos and Binance first partnered in 2020, positioning BUSD as a regulated stablecoin backed 1:1 with the US dollar.
Paxos was responsible for issuing and managing the token under oversight from New York’s financial regulator.
At its height, BUSD reached a circulation of more than $23 billion, becoming the third-largest stablecoin globally behind Tether and USD Coin.
Despite this, regulators later raised concerns about Binance’s compliance practices.
The NYDFS flagged multiple issues, including what it described as failures to monitor Binance’s activities in line with legal standards.
In particular, Paxos was accused of not conducting appropriate checks before and during the partnership.
Regulatory pressure and subsequent shutdown
By late 2022, the regulatory environment surrounding stablecoins had tightened significantly in the US.
Both the NYDFS and the US Securities and Exchange Commission (SEC) began investigating the structure and marketing of BUSD.
The SEC questioned whether the token qualified as an unregistered security, while the NYDFS focused on due diligence and anti-money laundering breaches.
In February 2023, the NYDFS ordered Paxos to stop issuing new BUSD tokens.
Paxos complied with the directive, continuing to support redemptions, which led to a gradual reduction in the supply of BUSD.
Binance, meanwhile, began scaling back support for the token, signalling an end to their joint effort.
Trump-era regulators eased pressure in 2024
The timing of the settlement coincides with a shift in the US crypto regulatory landscape.
Since President Donald Trump returned to office, key agencies have seen leadership changes, including the appointment of Paul Atkins—a known crypto advocate—as SEC Chairman.
This change in leadership led to the SEC officially ending its investigation into Paxos in July 2024.
Although the company is no longer under scrutiny by federal securities regulators, the NYDFS chose to continue its enforcement efforts, resulting in this latest settlement.
As part of the deal, Paxos will pay a $26.5 million penalty and commit $22 million towards upgrading its compliance systems.
The company remains a key issuer of other stablecoins, including PayPal USD (PYUSD), and continues to operate under regulatory supervision in New York.
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