The U.S. Securities and Exchange Commission (SEC) has cautioned it might challenge creditor repayments by FTX using stablecoins.
In a filing to the U.S. Bankruptcy Court in Delaware on Aug. 30, SEC lawyers stated that while paying creditors with US-dollar pegged stablecoins may not technically violate laws, the regulator reserves the right to object to such repayments.
Since FTX’s collapse in November 2022, the bankrupt exchange has explored various methods to compensate creditors, including a shelved plan to restart the platform. While many creditors have sought in-kind payments, FTX’s current plan proposes to settle claims in cash or stablecoins based on the U.S. dollar value of assets at the time of its bankruptcy.
“The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets,” the filing stated.
The agency said it reserves the right to dispute the legality of any efforts to pay creditors using the bankrupt exchange’s holdings of “crypto asset securities.” The regulator also noted that FTX’s plan fails to clarify who would handle the distribution of U.S. dollar-pegged stablecoins, should that form of repayment be approved.
The filing comes after FTX, under CEO John Ray III, rejected proposals to relaunch the exchange or make in-kind payments to creditors. The company plans instead to repay in cash or stablecoins, despite some creditors advocating for repayment in the form of crypto assets rather than cash.
Meanwhile, the U.S. Trustee overseeing the bankruptcy case joined the SEC in objecting to a provision in FTX’s plan that would shield the exchange from future legal action by creditors. “Unless the Plan provides that the Debtors shall not receive a discharge and removes any discharge injunction, the Court should deny confirmation,” the Trustee wrote, citing the relevant statute.
The cost of FTX’s bankruptcy has grown significantly, with fees requested by the exchange’s team now exceeding $800 million, according to a tally shared on X by a user named Mr. Purple.
FTX’s exchange collapsed in late 2022, prompting a lengthy bankruptcy process that has seen various proposals and plans to maximize creditor recovery, including trading tokenized claims on decentralized platforms.
