SEC Highlights Risks in Stablecoin Issuer Circle’s IPO Bid: Report

The Securities and Exchange Commission (SEC) has raised several concerns about stablecoin issuer Circle ahead of its IPO. One of the agency’s primary concerns is tied to inadequate disclosures related to its stablecoin USDC. Let’s delve into the details.

USDC and Circle’s IPO Journey

Circle, a major player in the stablecoin market, initially attempted to go public in 2021 through a special purpose acquisition company (SPAC) merger, but that plan fell through. As of early this year, the company was exploring a traditional IPO route. USDC, Circle’s USD-pegged stablecoin, currently holds the position of the second-largest stablecoin globally, with a market capitalization of $32.7 billion.

Scrutiny and Disclosures

Barron’s obtained 155 pages of documents related to the communication between the SEC and Circle during the SPAC IPO attempt. The SEC requested that Circle enhance disclosures about the potential risk of USDC being classified as a security, and Circle complied. However, the possibility of USDC being deemed a security by the SEC poses challenges for Circle’s IPO plans. While the exact consequences remain unclear, potential penalties and stricter regulations could be in store. Circle might face fines and could be forced to register as a broker-dealer, adding compliance burdens.

Beyond USDC: Circle’s Classification

The SEC’s concerns extend beyond USDC. It questions whether Circle itself should be classified as an “investment company,” which would subject it to stricter regulations. This classification could lead to more SEC oversight, regular reporting requirements, and limitations on business activities compared to a typical operating company. Additionally, if USDC is deemed a security, registration hurdles and restrictions on transactions with certain businesses may arise.

Circle, along with other stablecoin leaders like Tether, has actively lobbied Congress for clear legislation defining how stablecoins should be regulated. Despite the challenges, Circle remains committed to its US ambitions, recently filing paperwork to relocate its legal headquarters from Ireland to the US.