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- The SEC has raised concerns over FTX’s plan to repay creditors in stablecoins or other crypto assets, challenging the legality of the transactions.
- Amid ongoing bankruptcy proceedings, FTX’s management has dismissed the idea of relaunching the exchange, opting instead for cash or stablecoin repayments.
In its recent filing, the U.S. Securities and Exchange Commission (SEC) has warned that defunct crypto exchange FTX over the creditor repayment ether in stablecoins or other crypto assets. The securities regulator has challenged the legality of paying back claims while trying to make money from its stash of crypto asset securities.
Furthermore, the SEC filing also highlights that the FTX repayment plan lacks details on who would be responsible for distributing the stablecoins if all the provisions are approved. Although the SEC hasn’t explicitly stated that the action would be illegal, it noted:
“The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the Plan,” adding that the agency, “…reserves its rights to challenge transactions involving crypto assets.”
The SEC along with the U.S. Trustee overseeing the bankruptcy has objected to discharge a provision in the plan that protects the FTX debtors from future legal actions by the creditors. The U.S. Trustee stated in his filing that “unless the Plan provides that the Debtors shall not receive a discharge and removes any discharge injunction, the Court should deny confirmation,” citing the relevant statute.
On the other hand, the administrative cost of FTX’s bankruptcy has skyrocketed significantly, with fees as per the staff request recently exceeding $800 million.
Will the SEC Be A Thorn in the FTX Repayment Plan?
The debtors have explored multiple strategies to maximize creditor recovery during the FTX bankruptcy process, reported Crypto News Flash. This includes key proposals to relaunch the FTX exchange and generate funds for creditors. The FTX repayment plan also includes the distribution of claims as it allows the trading of tokens in a new venture, per the CNF report.
Earlier this summer, FTX also received support for relaunching from decentralized marketplaces like Found.xyz and Figure Markets, along with supporting the tokenized FTX claims trading.
However, the FTX leading team including CEO John Ray III and legal counsel Sullivan & Cromwell have rejected the idea of restarting the exchange adding that there would be no investors willing to provide the necessary capital to revive the offshore platform.
On the other hand, creditors have advocated for in-kind distributions, similar to the BlockFi and Genesis bankruptcies, wherein the repayment of lost crypto happened in crypto itself. The current plan of FTX involves repaying creditors in cash or U.S. dollar-pegged stablecoins.
Coinbase’s chief legal officer (CLO) Paul Grewal slammed the US SEC for its intimidating tactics and attempt at crypto overreach. “Why provide clarity to the market when threats and aspersions will do? Investors, consumers, and markets deserve better—way better,” he wrote.
