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Stablecoin Circle Poloniex
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Circle to Settle SEC Case Over Acquisition of Crypto Company

Circle Internet Financial is one of the largest companies in the cryptocurrency sector. It disclosed that it will be setting aside $10.4 million to settle a case with the U.S. Securities and Exchange Commission (SEC). The case involves the company’s previous acquisition of Poloniex, a now discontinued crypto exchange.

Circle acquired Poloniex in 2018 for $400 million. Since then, the cryptocurrency company has faced a series of legal woes. In 2017, before Circle acquired Poloniex, the SEC filed a complaint against Poloniex for “the trading of cryptocurrencies that may be characterized as securities.”

The company cut ties with Poloniex in late 2019. Despite cutting ties, the SEC case continued. The Office of Foreign Asset Control (OFAC) also investigated the company for sanctions violations. The company received an administrative subpoena from OFAC and also from an Iran government agency. The subpoenas related to transactions in Poloniex’s registered exchange accounts for people in sanctioned jurisdictions.

Circle Thought Poloniex Would Help It Expand

When the company first acquired Poloniex, its co-founders Jeremy Allaire and Sean Neville had envisioned Poloniex as helping the platform expand. Through the acquisition, the company thought it could build a far-reaching digital asset marketplace that would include a variety of digital tokens. It is now estimated that Circle lost $156 million through its acquisition and subsequent sale of Poloniex only 18 months later.

SEC Circle Case

In order to settle the SEC case, Circle has set aside more than $10.4 million. The company hired a new Chief Compliance Officer to help prevent future regulatory mishaps. Mandeep Walia, the company’s new Chief Compliance Officer, previously served as the Chief Compliance Officer and Head of Enterprise Risk Management for Novi Financial, a digital wallet app. Built on blockchain technology, the Novi digital wallet will facilitate the movement of the Facebook-backed digital currency Diem.

Company Known for Stablecoins

Based in Boston, Circle has become known for advancing the development of stablecoin. Stablecoins are designed to maintain an equal value to the U.S. dollar. By being pegged to a government-issued currency, stablecoins are intended to avoid significant price volatility.

Circle created the USDC stablecoin, which today has around a $25 billion market capitalization. The USDC stablecoin has grown by more than 3,400% this year. The growing demand for digital dollar stablecoins is partly attributable to increased demand from businesses seeking faster payment and settlement options.

Skepticism Over Stablecoins

Some regulators have expressed skepticism over stablecoins. Boston Federal Reserve President Eric Rosengren commented, “there are many reasons to think many of the stablecoins are not actually particularly stable.” Circle has attempted to be more transparent by publishing monthly reports about its stablecoin reserves and providing other disclosure materials.

The company describes itself as an online payments and treasury infrastructure firm. Circle’s overall mission is to build a more open, global and accessible financial system. Founded in 2013, Circle has come a long way in building a platform to integrate the fiat currency system with the crypto and blockchain ecosystems.

Circle has partnered with Visa in order to integrate its USDC payments infrastructure. This integration will enable stablecoin payouts to Visa’s network of digital currency wallets. Circle also has partnerships with crypto trading platforms FTX and Crypto.com.

But Circle is Going Public

Following in the footsteps of many other technology companies this year, Circle recently announced that it will be going public via a merger with a special purpose acquisition company (SPAC). The publicly traded SPAC that Circle will be merging with is called Concord Acquisition Corp. The transaction values Circle at $4.5 billion.

“As we started the year, we had experienced a very dramatic growth in USDC and very strong traction with new products and services that we’re launching,” remarked Jeremy Allaire, Circle’s co-founder and CEO. Our view is that we were in a very unique position to rapidly build out and scale out a major franchise, built around delivering digital currency-based financial services around the world. It’s a unique opportunity to be able to not just raise that amount of capital but transform the company into a company that’s accountable to the public.”

Circle has had a lot of positive momentum leading up to the SPAC merger announcement. In May 2021, Circle set a record by raising the largest venture round ever raised by a crypto startup. The fundraising round was $440 million and included participation from Fidelity Management and research and Bloomberg’s philanthropy arm.

A number of other cryptocurrency and blockchain companies have recently turned to public markets to raise additional capital. Coinbase notably make its debut on public markets in April. By going public, Circle will be able to scale more quickly. Being a public company also means being subject to ongoing reporting requirements and increased scrutiny. Circle believes this increased transparency will help blunt criticism of its business practices.

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Carpenter Wellington PLLC

Carpenter Wellington PLLC

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Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.