The US Securities and Exchange Commission (SEC) has expressed worries regarding Circle’s stablecoin, USDC, as the company moves forward with plans to go public in a substantial initial public offering (IPO). According to reports from Barron’s, the regulatory agency has raised red flags about the potential classification of USDC and other stablecoins as securities under US law. This is not the first time that the SEC has expressed such concerns, as a similar situation arose in 2021 when Circle attempted to go public through a special-purpose acquisition company (SPAC).
Recent documents reveal a lengthy dialogue between the SEC’s Division of Corporation Finance and Circle, spanning almost a year. Despite overcoming several obstacles on the path to an IPO, Circle continues to face significant concerns from the regulatory body. The SEC has specifically asked Circle to disclose the risks associated with USDC being classified as a security under US law and the potential implications of being recognized as an investment company.
If USDC were to be classified as a security, Circle would be subject to heightened costs and regulatory requirements, ultimately affecting its overall business model. The SEC’s scrutiny is not new to Circle, as the company’s previous attempt to go public in 2021 through an SPAC merger was met with similar concerns and ultimately called off in December 2022. Despite filing confidential IPO paperwork in January for a traditional IPO route, the SEC’s reservations persist, prompting detailed disclosures from Circle about the risks associated with USDC being labeled as a security.
In the event that Circle is designated as an investment company rather than an operating company, the SEC would impose closer oversight on the firm. This would require Circle to submit regular reports on its holdings and adhere to specific limits set by the regulatory body. Securities attorney Xavier Kowalski emphasized the importance of the SEC’s thorough review process, noting that any oversights could lead to enforcement actions in the future. Kowalski also highlighted the extended duration of the SEC’s concerns, which lasted eight months into the process, but acknowledged the agency’s apparent satisfaction with Circle’s IPO plans.
Todd Phillips, a law professor at Georgia State University, pointed out the potential challenges faced by Circle if its products are classified as securities. He highlighted the increased operational costs for Circle and the possibility of operational limitations if USDC or other assets are required to be registered. Similarly, Kowalski raised concerns about the impact on Circle’s operations if it were to be designated as an investment company, underscoring the significance of complying with SEC regulations.
Overall, the SEC’s concerns regarding Circle’s stablecoin USDC highlight the complexities and challenges that innovative financial products face in the regulatory landscape. As the company strives to navigate the IPO process, it must address the regulatory considerations raised by the SEC to ensure a successful public offering and sustained growth in the market.
Leave a Reply