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Circle Internet Financial, the company behind the second-largest stablecoin USDC, is planning to go public through an IPO. But the SEC’s concerns about USDC could test its ambitious bid, said Barron’s, citing documents from the SEC.
The documents show that the SEC’s Division of Corporation Finance engaged in nearly a year-long correspondence with Circle. The Commission requested Circle’s disclosures about the risks of USDC being classified as a security and raised concerns about whether Circle should be considered an “investment company” and go through a different registration process.
If USDC is deemed a security, Circle would face increased costs and regulatory requirements, as it would need to register USDC and potentially be subject to investment company regulations, Barron’s noted. This could make it more expensive for Circle to operate. Plus, this could prevent certain types of businesses from being able to transact in USDC.
If Circle is deemed an investment company, it would be subject to closer SEC oversight, including requirements to file holding reports and to abide by certain operational limits that don’t apply to regular operating companies.
“If these things are securities, it becomes more expensive for Circle to operate, if they even can operate,” Todd Phillips, a law professor at Georgia State University, told Barron’s.
Circle’s IPO plan, disclosed earlier this year, is the company’s second attempt. Its initial bid to go public in 2022 was unsuccessful due to SEC scrutiny. The company said the IPO would take place after the SEC completes its review, in accordance with market conditions and other factors.
Previously, SEC Chair Gary Gensler hinted that stablecoins backed by securities could be treated as securities. However, he did not specifically name USDC in his remarks.
Coinbase, Circle’s prominent backer, 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.
Additionally, in a court filing last September, Circle claimed that stablecoins like USDC are not securities because those who purchase USDC are not expecting any profit, and payment do not have the “features of an investment contract.”
USDC is not the only stablecoin under the regulatory radar. PayPal’s stablecoin PYUSD and Ripple’s upcoming stablecoin, Ripple USD (RLUSD), also face scrutiny from the SEC.
PayPal said last November it received a subpoena from the SEC requesting documents related to PYUSD.
Ripple plans to debut its stablecoin on XRPL and Ethereum, but the SEC has already considered it evidence that Ripple might keep doing things that violate securities laws.
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