The US Securities and Exchange Commission (SEC) has recently expressed concerns regarding Circle’s stablecoin, USDC, as the company moves forward with plans to go public through a multi-billion dollar initial public offering (IPO). Regulatory documents obtained by Barron’s on June 18 revealed that the SEC has raised issues related to the potential classification of USDC and other stablecoins as securities under US law. This is not the first time the SEC has voiced concerns about Circle’s IPO attempts, as similar worries were raised back in 2021 when the company aimed to go public via a special-purpose acquisition company (SPAC).
The regulatory documents disclosed a prolonged exchange between Circle and the SEC’s Division of Corporation Finance, lasting nearly a year. While Circle has reportedly managed to overcome most of the obstacles to its IPO, there are still significant concerns raised by the SEC regarding the classification of USDC as a security. The SEC has requested that Circle provide detailed information about the risks associated with USDC being considered a security under US law and the potential implications of being categorized as an investment company.
If USDC were to be classified as a security, Circle could face increased costs and regulatory requirements, ultimately affecting its business operations. This could result in Circle needing to register USDC as well as other assets that receive a securities designation, potentially limiting the company’s ability to transact with certain types of entities. The SEC’s designation of Circle as an investment company rather than an operating company would lead to closer oversight and reporting requirements, imposing additional burdens on the company.
Legal experts have weighed in on the implications of the SEC’s concerns for Circle. Todd Phillips, a law professor at Georgia State University, highlighted the potential challenges that Circle might face if their products are deemed securities, noting that it would become more expensive for the company to operate. Securities attorney Xavier Kowalski emphasized the importance of the SEC’s registration review process in avoiding future enforcement actions, pointing out the meticulous nature of the SEC’s scrutiny towards Circle’s IPO.
The SEC’s concerns regarding the classification of USDC as a security and Circle’s potential designation as an investment company pose significant challenges for the company’s IPO aspirations. Despite Circle’s efforts to address the SEC’s disclosure requests, the uncertainties surrounding the regulatory classification of USDC could have far-reaching implications for the company’s future operations. As the SEC continues to scrutinize Circle’s IPO application, the outcome remains uncertain, leaving the company in a precarious position as it navigates the complexities of regulatory oversight in the cryptocurrency space.
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