The Securities and Exchange Commission’s (SEC) concerns over the status of Circle’s stablecoin, USDC, are posing potential complications for the company’s plans to go public through an initial public offering (IPO), according to Barron’s. The regulatory documents revealed that the SEC is worried about the classification of USDC and other stablecoins as securities under US law, a concern also raised when Circle attempted to go public via a special-purpose acquisition company (SPAC) in 2021. While Circle has reportedly overcome most obstacles to its IPO, the approval of its application remains uncertain at this time.
The SEC has specifically asked Circle to disclose the risks associated with USDC if it is considered a security, as well as the potential consequences of being deemed an investment company. Being classified as a security would subject Circle to increased costs and regulatory requirements, affecting its business model. Circle’s previous attempt at going public through an SPAC merger with Concord Acquisition Corp. was called off in 2022 due to similar concerns raised by the SEC.
Circle filed confidential IPO paperwork in January, aiming for a traditional IPO route in its second attempt. However, the SEC has reportedly persisted in raising concerns, requesting detailed disclosures about the risks associated with USDC as a security. If Circle’s products are classified as securities, it could become more expensive for the company to operate, potentially hindering its operations.
Circle may also need to register USDC or other assets with securities designations, which could limit the types of companies that can transact with these assets. Additionally, Circle might face fines, be required to register as a broker-dealer, and allow customers to rescind previous purchases. If the SEC considers Circle an investment company instead of an operating company, it would be subject to closer oversight, necessitating regular holdings reports and compliance with limits.
Some experts believe that the SEC’s concerns stem from a desire to protect itself rather than restrict Circle. Securities attorney Xavier Kowalski emphasized that the SEC wants to avoid any registration review actions that could lead to enforcement actions later. Although the SEC’s concerns have persisted for nearly eight months, it appears that the agency has found some satisfaction in Circle’s IPO plans.