The U.S. Securities and Exchange Commission (SEC) has once again raised concerns regarding the status of Circle’s stablecoin, USDC, as the company moves forward with plans for a multi-billion dollar initial public offering (IPO). According to Barron’s, the SEC has expressed worries about the potential classification of USDC and other stablecoins as securities under U.S. law. This isn’t the first time the watchdog has voiced such concerns, as similar issues arose in 2021 when Circle attempted to go public through a special-purpose acquisition company (SPAC).
Recent regulatory documents have shed light on the prolonged back-and-forth between the SEC’s Division of Corporation Finance and Circle, spanning nearly a year. While Circle has reportedly managed to navigate most obstacles to its IPO, the SEC still has significant reservations. The watchdog has specifically requested that Circle discloses the risks associated with USDC potentially being classified as a security under U.S. law, along with the implications of being deemed an investment company.
If USDC were to be classified as a security, Circle would face heightened costs and regulatory requirements, which could have a substantial impact on its business operations. This could include increased compliance measures, regular reporting obligations, and operational restrictions akin to those faced by investment companies such as mutual funds. Such a designation could fundamentally alter the way Circle operates and could impede its ability to transact with certain types of entities.
Circle first made an attempt to go public in 2021 through an SPAC merger valued at $9 billion with Concord Acquisition Corp. However, this endeavor was abandoned in December 2022, largely due to the SEC’s concerns around regulatory classification and compliance. While Circle filed confidential IPO paperwork in January as part of a second attempt to go public through a traditional IPO route, the SEC’s reservations have persisted. The agency has continued to push for detailed disclosures regarding the potential risks associated with USDC being labeled as a security.
Legal experts have weighed in on the situation, highlighting the potential implications for Circle if the SEC’s concerns come to fruition. Todd Phillips, a law professor at Georgia State University, emphasized the increased operational costs and potential restrictions Circle may face if USDC is classified as a security. Securities attorney Xavier Kowalski pointed out the heightened SEC oversight Circle would be subject to if classified as an investment company, including regular reporting requirements and compliance limits.
The regulatory hurdles surrounding Circle’s USDC stablecoin IPO are indicative of the evolving landscape of digital assets and cryptocurrency regulation. As the SEC continues to scrutinize the classification of tokens like USDC, companies operating in this space must navigate complex legal and regulatory challenges to ensure compliance and operational viability. Circle’s ongoing interactions with the SEC underscore the critical importance of transparency and adherence to regulatory guidelines in the emerging digital asset ecosystem.
