SEC Throws Wrench in FTX’s Stablecoin Repayment Plan, Faces Backlash

• FTX's most recent liquidation plan suggests repaying $12.7B to its creditors in US dollars or stablecoins.
• However, the US Securities and Exchange Commission (SEC) said it could challenge FTX's stablecoin repayment plan.
• Industry players lashed out at the SEC for overreaching its authority.

The US SEC warned it maytake legal action against the defunct exchange FTX if it attempts to reimburse its creditors using stablecoins.

While using stablecoins for creditor repayments is not illegal, the SEC can dispute this plan, the regulator stated in a court filing.

FTX's $12.7B Repayment Plan

The infamous FTX collapse in November 2022 has become one of the largest scams in crypto history. In early August, a New York judge ruled that FTX must repay $12.7B to its creditors.

Initially, FTX proposed to return its victims 118% of their lost funds based on their value in US dollars at the time of the exchange's bankruptcy filing.

However, some creditors sought payouts in crypto in-kind, factoring in the market's substantial market cap increase.

To put it into perspective, Bitcoin ($BTC) was worth $16.9K in November 2022 and has since surged 242%, now at $57.8K.

Yet, bankruptcy laws require FTX to value claims at the time of Chapter 11 filing, and the court is not obliged to approvecreditors' requests.

SEC Challenges FTX Plan, Faces Backlash

Despite creditors' call for in-kind crypto repayments, FTX's latest liquidation plan suggests repaying creditors in US dollars or stablecoins.

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.US SEC

The regulator also noted that FTX hasn't chosen a distribution agent' - a company that would oversee the repayment process.

Alex Thorn at Galaxy Digital criticized the SEC for overreaching its authority. He pointed out that the SEC continues to claim stablecoins should be classified as crypto asset securities despite dropping the Paxos case in July.

It's quite absurd if you think about it. No one, including most other regulators and both parties, thinks the SEC should have oversight of genuine number stay flat' technologies. The SEC doesn't even make a case here. They are just unwilling to let it go.Alex ThornClosing Remarks

The SEC maintains a harsh stance on stablecoins, viewing them as crypto asset securities. Despite dropping its case against Paxos, the regulator continues to threaten legal action against FTX for using stablecoins to repay creditors.

Regardless of the outcome, this case maycall for reforms to bankruptcy lawsto better accommodate crypto firms.

References

• FTX seeks creditor votes on bankruptcy wind-down payments (Reuters)
• Alex Thorn (X)
• Paxos Prevails in SEC Investigation of BUSD Stablecoin and SEC Will Not Pursue Enforcement Action (Paxos)
• Case 22-11068-JTD Doc 2438 (Kroll)

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