- The US Securities and Exchange Commission (SEC) has filed with the US Bankruptcy Court reserving its right to challenge FTX’s use of stablecoins and other digital assets in repayments to its creditors.
- The SEC didn’t lay out a case against the use of stablecoins by FTX in its filing and explicitly said it wasn’t taking a position on its legality.
- The SEC’s filing has been met with criticism from the crypto community, with some saying it’s another example of regulatory overreach.
The US Securities and Exchange Commission (SEC) took the unusual step last Friday of submitting a filing to ensure it can potentially challenge FTX’s plan to repay creditors using stablecoins, while at the same time suggesting the plan might be totally legal.
In its filing to the US Bankruptcy Court, the SEC says it isn’t taking a position on the legality of FTX’s plan, but is simply reserving its right to challenge any payments to creditors involving digital assets — including stablecoins — which the regulator now refers to as “crypto asset securities”.
This filing has attracted criticism from members of the crypto community. Some suggested it’s another example of over-reach from the SEC, pointing out the regulator failed to even make a case for opposing stablecoin payments.
Related: FTX to Offer 118% Cash Back in Reimbursement Plan for Victims, Exceeding Initial Losses
SEC Opposes Use of Stablecoins to Pay Back Creditors
Since its collapse in 2022, several different schemes have been considered to maximise repayments to FTX’s creditors. At one stage the failed exchange’s new leadership even briefly flirted with the idea of relaunching the exchange, a scheme that the new CEO John Ray III decided wouldn’t fly, as nobody in their right mind would want to fund such a venture.
FTX’s current plan for repaying its creditors is to use cash and stablecoins, funded at least partly through sales of its crypto assets. The SEC seems to be fine with the cash half of that proposal, but the stablecoins got their attention.
In its filing the SEC said it wanted to make sure that it could — should the mood strike — challenge the legality of the use of stablecoins (or any other crypto) by FTX to repay creditors:
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.
SEC filing to US Bankruptcy Court
The SEC also mentioned that FTX’s plan doesn’t specify who would be responsible for distributing stablecoins in the event that its plan is approved.
Previously, the SEC has joined the US Trustee overseeing FTX’s bankruptcy in opposing a discharge provision that would protect FTX from any future legal action by creditors, with a footnote in the SEC’s filing saying:
The SEC has requested that the Debtors delete the discharge provision from the Plan and proposed confirmation order and has also asked the Debtors to make certain other changes to the Plan and proposed confirmation order. The SEC reserves the right to object to confirmation of the Plan if these changes are not made.
SEC filing to US Bankruptcy Court
The total cost of FTX’s bankruptcy now stands at over US$800 million (AU$1.17b), according to an X / Twitter user known as Mr. Purple, that’s around US$1.3 million (AU$1.9 million) per day:
SEC’s Filing Attract Plenty of Criticism
Unsurprisingly, the SEC’s filing has attracted a lot of criticism from the Web3 community. Alex Thorn, the Head of Research at crypto focussed financial services firm, Galaxy Digital, was pretty scathing in his assessment of the filing on X / Twitter, calling it “the height of jurisdictional overreach”. Thorn continued, saying that:
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. it’s a bludgeon they must keep sharp, lest any legitimate actors deign to wield these (boringly above-board) instruments.
Alex Thorn, Head of Research at Galaxy Digital Related: US SEC Delivers Enforcement Warning to OpenSea, Alleges NFTs are Securities
Other X / Twitter users have suggested investors would much prefer to have their crypto returned to them rather than its 2022 cash value:
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