FTX is still looking into different ways to pay its creditors.
The US Securities and Exchange Commission (SEC) has issued a warning, stating that it might contest the repayment plan of the defunct cryptocurrency exchange FTX if it calls for paying back creditors with stablecoins.
In a court filing on August 30 to the U.S. Bankruptcy Court in Delaware, SEC attorneys indicated that while repaying creditors with stablecoins might not be outright illegal, the agency reserves the right to contest such repayments if they involve US-dollar pegged crypto assets.
The action is being taken as FTX keeps looking into different ways to pay its creditors back following its shocking collapse in November 2022.
FTX’s Plans to Repay Creditors
FTX has contemplated various approaches to compensate creditors, such as reviving the exchange, which has been shelved.
According to FTX’s most recent proposal, claims will be settled and assets will be liquidated at their U.S. dollar value at the time of the exchange’s bankruptcy.
Creditors would be repaid in cash or stablecoins under this plan.
The regulatory body said in its filing that it “reserves its rights to challenge transactions involving crypto assets” and that it is not making an opinion on the legality, under federal securities laws, of the transactions described in the Plan.
In addition, the SEC noted that no “distribution agent”—a company that would supervise the disbursement of funds to creditors in the form of cash or stablecoins—has been named in the current repayment plan.
Prominent members of the crypto community have criticized the SEC’s position.
Paul Grewal, the chief legal officer of Coinbase, and Alex Thorn, the head of research at Galaxy Digital, have both openly criticized the regulator’s strategy.
Thorn charged that the SEC had overreached its jurisdiction, especially after the organization had dropped its lawsuit against Paxos, the company that issues Binance USD (BUSD) in July.
the SEC is again reserving the right to claim dollar-backed stablecoins are “crypto asset securities,” despite dropping their enforcement against paxos and losing their MTD on BUSD against binance in july
— Alex Thorn (@intangiblecoins) September 1, 2024
this is the height of jurisdictional overreach
it’s quite absurd if you… pic.twitter.com/laT6vY5i6T
Grewal concurred, saying that the market’s stability and clarity are threatened by the SEC’s actions.
SEC Under Scrutiny
The SEC has been under increasing fire in the meantime for its “regulation-by-enforcement” strategy toward the cryptocurrency sector.
Opponents claim that the SEC has not created a clear regulatory framework for cryptocurrencies and has instead chosen to take legal action against major participants in the market.
As previously reported, a group of seven states in the United States has united to oppose the Securities and Exchange Commission’s (SEC) regulation of cryptocurrencies.
The states, led by Attorney General Brenna Bird of Iowa, have filed an amicus brief in which they contend that the SEC’s attempt to regulate cryptocurrencies is an overreach of its authority and a “power grab” that would hinder innovation and the cryptocurrency industry.
Arkansas, Indiana, Kansas, Montana, and Nebraska are members of the coalition; Oklahoma is the newest member.
When it comes to regulating cryptocurrencies, SEC Commissioner Hester Peirce stated earlier this year that the organization is presently in a “enforcement-only mode.”