The United States Securities and Exchange Commission has warned that it could challenge payments made to creditors of the defunct crypto exchange FTX if the exchange chooses to return funds using stablecoins.
In an Aug. 30 filing to the United States Bankruptcy Court in Delaware, lawyers from the SEC said that while creditor repayments made with stablecoins may not be technically illegal, it reserved the right to challenge repayments made with US-dollar pegged crypto assets.
Following the collapse of the exchange in November 2022, FTX has pursued several potential methods to make creditors whole, including a now-binned plan to reboot the exchange.
While many creditors have called for in-kind payments, FTX’s most recent liquidation plan has agreed to pay out creditor claims based on the US dollar value of asset prices at the time of FTX’s bankruptcy in cash or with 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,” wrote the regulator.
The SEC warned it could challenge stablecoin-denominated creditor repayments. Source: Kroll
Additionally, the SEC noted that the current repayment plan had not yet identified a “distribution agent” — the firm that would be responsible for distributing funds to creditors, whether that be in cash or in stablecoins.
Related: US trustee challenges FTX reorganization plan, citing legal concerns
The SEC’s warning drew the ire of crypto pundits, including Galaxy Digital’s head of research Alex Thorn, and Coinbase chief legal officer Paul Grewal who lashed the regulator for “overreaching” and for levying unreasonable threats at FTX creditors.
In a Sept. 1 post to X, Thorn said the SEC was once again reserving the right to claim that dollar-backed stablecoins should be viewed as “crypto asset securities” despite the regulator dropping its case against Binance USD (BUSD) issuer Paxos in July.
“This is the height of jurisdictional overreach.”
“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,” said Thorn.
Source: Alex Thorn
“Why provide clarity to the market when threats and aspersions will do? Investors, consumers, and markets deserve better. Way better,” Grewal added in a Sept. 1 post to X.
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