The US SEC has expressed concerns about Circle’s stablecoin, USDC, as the company pursues a multi-billion dollar initial public offering (IPO), according to a report by Barron’s on June 18, citing regulatory documents.

The SEC's primary concerns involve the risks associated with USDC and other stablecoins possibly being classified as securities under US law. Similar concerns were raised by the SEC in 2021 when Circle attempted to go public through a special-purpose acquisition company (SPAC).

The report indicates that the SEC’s Division of Corporation Finance and Circle have had extensive communications over nearly a year. Despite significant concerns, Circle has reportedly addressed most issues related to its IPO, though it's still uncertain whether the application will be approved.

The SEC has asked Circle to disclose the risks if USDC is classified as a security and the potential implications of being deemed an investment company. Circle has complied with these disclosure requests but declined to comment on ongoing discussions.

If USDC were classified as a security, Circle would face increased costs and regulatory requirements, impacting its business model. Investment companies, like mutual funds, are subject to stringent SEC oversight, including regular reporting and operational restrictions.

Circle first tried to go public in 2021 via an SPAC merger with Concord Acquisition Corp., valuing the deal at $9 billion, but it was called off in December 2022. The SEC had similar concerns then, questioning whether Circle should register as an investment company and whether its token could be considered a security.

In January, Circle filed confidential IPO paperwork, hoping to proceed through a traditional IPO route. However, the SEC’s concerns have persisted, with the agency requesting detailed disclosures about the risks if USDC is classified as a security.

Both potential classifications could negatively impact Circle. Todd Phillips, a law professor at Georgia State University, told Barron’s that if Circle's products are securities, operating costs could increase, possibly hindering operations.

If Circle were required to register USDC or other assets as securities, it might prevent some company types from using these assets and could lead to fines and the need to register as a broker-dealer, among other requirements.

If classified as an investment company, Circle would be subject to more stringent SEC oversight, including regular holdings reports and operational limits.

Securities attorney Xavier Kowalski, not involved in Circle’s investment process, suggested the SEC aims to protect itself rather than restrict Circle. Kowalski noted that it was unfortunate the SEC's concerns lasted so long but added that the agency appears to have addressed its concerns about Circle’s IPO.