Circle, a financial technology company, has been facing concerns from the US Securities and Exchange Commission (SEC) regarding its stablecoin, USDC. The company has been in the process of seeking to go public through a multi-billion dollar initial public offering (IPO). The SEC’s worries primarily revolve around the potential classification of USDC and other stablecoins as securities under US law. This is not the first time the SEC has expressed such concerns, as similar issues arose back in 2021 when Circle attempted to go public via a special-purpose acquisition company (SPAC). Despite the challenges, Circle has managed to overcome many hurdles on its path to an IPO.
The recent regulatory documents reveal an extended back-and-forth between the SEC’s Division of Corporation Finance and Circle, lasting nearly a year. The SEC has requested detailed disclosures from Circle regarding the risks associated with USDC being classified as a security under US law. Additionally, the SEC has inquired about the potential implications of USDC being deemed an investment company. Circle has complied with the SEC’s disclosure requests, but has opted not to comment on the ongoing discussions. If USDC were to be classified as a security, Circle would be subject to increased costs and regulatory requirements, impacting its operational model significantly.
Past Attempts and Current Status
Circle’s first attempt at going public in 2021 through a SPAC merger was valued at $9 billion but was eventually called off. The SEC had raised concerns regarding investment company registration and the classification of Circle’s token as a security during that time. In January, the company filed confidential IPO paperwork in hopes of a different outcome, but the SEC’s concerns have persisted. The SEC’s continued requests for detailed disclosures regarding the risks associated with USDC being considered a security highlight the ongoing challenges faced by Circle.
Should USDC be classified as a security, Circle could face a series of consequences. The company may have to register USDC or other assets under a securities designation, potentially restricting certain types of transactions. Circle might also face fines, the need to register as a broker-dealer, and customer obligations to rescind previous purchases. Furthermore, if Circle were to be designated as an investment company rather than an operating company, it would be subject to closer SEC oversight, requiring regular holdings reports and compliance with set limits.
Legal experts have weighed in on the situation, highlighting the potential challenges Circle may encounter. Todd Phillips, a law professor at Georgia State University, emphasized that if Circle’s products are deemed securities, operating costs could increase significantly, potentially affecting the company’s ability to operate smoothly. Securities attorney Xavier Kowalski pointed out the SEC’s cautious approach, noting that the agency aims to prevent any issues during the registration review process that could lead to enforcement actions later on. Although the SEC’s concerns have lasted throughout the process, it seems that the agency is making progress in addressing them in relation to Circle’s IPO.
The concerns raised by the SEC regarding Circle’s USDC stablecoin during its IPO process underscore the regulatory challenges faced by the company. The potential classification of USDC as a security could have far-reaching implications for Circle, impacting its operations, costs, and regulatory obligations. As the company navigates through the IPO process, it will be essential for Circle to address the SEC’s concerns effectively and ensure compliance with regulatory requirements to proceed with its public offering successfully.
