Circle, the cryptocurrency company and stablecoin issuer, revealed through a public filing that it is under investigation by the Securities and Exchange Commission. The news outlet Coindesk first reported the investigation.
A Circle spokesperson told Yahoo Finance that "Circle is cooperating in an ongoing SEC investigation. Our October S4 filing references a continuation to the July 2021 SEC subpoena previously disclosed in our August S4 filing."
In its most recent public filings, Circle stated that in July 2021 it "received an investigative subpoena from the SEC Enforcement Division requesting documents and information regarding certain of our holdings, customer programs, and operations." The filing went on to say that Circle is fully cooperating with the regulator's investigation.
Along with the publicly-listed crypto exchange, Coinbase (COIN), Circle is one of the founding members of the Centre Consortium, an organization responsible for issuing USD coin (USDC-USD), the largest stablecoin after Tether (USDT-USD), that has a $32 billion market cap. Unlike other cryptocurrencies like bitcoin and ethereum, the value of stablecoins are pegged to fiat currencies, in USD coin's case the U.S. dollar. A swath of U.S. regulatory officials, including Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen and SEC Chair Gary Gensler, have signaled a desire to tighten regulation of stablecoins such as Tether and USDC.
Last month, friction between the crypto sector and U.S. regulators came to a head amid mounting regulatory action. Gensler said the crypto sector is still the "wild west" in his testimony before Congress. Around the same time, Coinbase CEO Brian Armstrong publicly revealed that the SEC blocked the crypto exchange from issuing a crypto lending product without first registering it as a security.
In an interview weeks later, Circle CEO Jeremy Allaire told Yahoo Finance that Circle had already issued a lending product of its own called Circle Yield, recognizing it as a security offering.
"Our analysis was that this was going to be a security and that we need to offer it as a security," said Allaire referring to Circle Yield. The high-yield product is offered as a security through the Bermuda Monetary Authority. Unlike Coinbase's product, Circle Yield is only available to accredited investors.
Allaire went on to say that the U.S. needs more regulatory clarity in the crypto lending space. "I think it would be great if there was a clear set of rules in the banking system in the United States around crypto asset lending that doesn't really exist yet... we see this as a really important product area with a lot of growth," he said.
Additionally, in August Circle paid a $10.4 million settlement to the SEC in connection with its former subsidiary, the now-defunct crypto exchange, Poloniex. Valued at $4.5 billion, Circle plans a public listing via SPAC under the ticker CRCL.
David Hollerith is a senior reporter covering the cryptocurrency and stock markets. You can follow him @DsHollers.