SEC Signals Potential Challenge to FTX’s Stablecoin Repayment Plan
The U.S. Securities and Exchange Commission (SEC) has indicated it may oppose FTX’s proposal to repay creditors using stablecoins, introducing a new wrinkle in the ongoing bankruptcy proceedings of the collapsed crypto exchange.
In a court filing dated August 30, 2024, the SEC stated that while stablecoin-denominated creditor repayments may not be explicitly illegal, the agency “reserves its rights to challenge transactions involving crypto assets.” This stance has raised concerns about potential delays in the distribution process and sparked criticism from industry observers.
FTX’s current liquidation plan, developed in the wake of its November 2022 collapse, aims to pay out creditor claims based on the U.S. dollar value of asset prices at the time of the bankruptcy. The plan allows for payments in cash or stablecoins, with the latter option being a point of contention for the SEC.
The regulator’s filing also noted that FTX has not yet identified a “distribution agent” responsible for distributing funds to creditors, whether in cash or stablecoins. This lack of clarity adds another layer of uncertainty to the repayment process.
The SEC’s position has drawn criticism from crypto industry figures. Alex Thorn, head of research at Galaxy Digital, called it “the height of jurisdictional overreach” in a post on social media platform X. Paul Grewal, chief legal officer at Coinbase, echoed this sentiment, stating that “investors, consumers, and markets deserve better.”
This development echoes similar concerns raised by the SEC in previous crypto bankruptcy cases, such as Voyager Digital’s in 2022. Critics argue that the regulator’s approach introduces additional uncertainty to an already complex bankruptcy process, potentially prolonging resolutions and impacting creditors.
The FTX bankruptcy plan, if approved, would see 98% of creditors receive up to 118% of their claims in cash within 60 days of court approval. However, the SEC’s latest filing could potentially complicate this timeline.
As the crypto industry continues to grapple with regulatory challenges, the outcome of this case could have significant implications for future bankruptcy proceedings involving digital assets. The bankruptcy court has scheduled a hearing on the matter for October 7, 2024, where these issues are expected to be addressed.
