SEC Warns It May Challenge FTX’s Stablecoin Payment Plan
Date: 2024-09-03 Author: Gabriel Deangelo Categories: BUSINESS
The U.S. Securities and Exchange Commission (SEC) has warned that it may challenge the payment plan of bankrupt cryptocurrency exchange FTX if the plan involves paying back creditors using stablecoins.
In an August 30 court filing in the U.S. Bankruptcy Court in Delaware, SEC lawyers said that while paying creditors in stablecoins may not be patently illegal, the agency reserves the right to challenge such payments if they involve crypto assets pegged to the U.S. dollar.
The move comes as FTX continues to explore various options to compensate its creditors following its dramatic collapse in November 2022.
FTX Plans to Pay Creditors
FTX has considered several strategies to fully pay off its creditors, including a delayed plan to revive the exchange.
FTX’s latest proposal involves liquidating assets and settling claims based on their dollar value at the time of the exchange’s bankruptcy. Under this plan, creditors would be paid in cash or stablecoins.
“The SEC expresses no opinion on the validity of the transactions described in the plan under the federal securities laws and reserves the right to challenge transactions involving crypto assets,” the regulator said in a statement.
In addition, the SEC noted that the current payment plan has not yet appointed a “distribution agent” — a company that will manage the distribution of funds to creditors, whether in cash or stablecoins.
The SEC’s stance has drawn criticism from prominent figures in the crypto community.
Alex Thorne, head of research at Galaxy Digital, and Paul Grewal, general counsel at Coinbase, have publicly condemned the regulator’s approach.
Thorne accused the SEC of “abusing its power,” especially in light of the agency’s dismissal of a case against Binance USD (BUSD) issuer Paxos in July.
Grewal echoed these sentiments, arguing that the SEC’s threats undermine clarity and stability in the market.
SEC Under Scrutiny
Meanwhile, the SEC is facing growing criticism over its “regulation by enforcement” approach to the cryptocurrency industry.
Critics argue that the SEC has failed to establish a clear regulatory framework for cryptocurrencies, instead choosing to target key industry participants through lawsuits.
As previously reported, a coalition of seven U.S. states has banded together to challenge the Securities and Exchange Commission’s (SEC) regulation of cryptocurrencies.
Led by Iowa Attorney General Brenna Bird, the states filed an amicus brief arguing that the SEC’s attempt to regulate cryptocurrencies is a “usurpation of power” that could stifle innovation, harm the crypto industry, and exceed the agency’s authority.
The coalition includes Arkansas, Indiana, Kansas, Montana, Nebraska, and, most recently, Oklahoma.
Earlier this year, SEC Commissioner Hester Peirce said the regulatory agency is currently operating in an “enforcement only” mode when it comes to regulating cryptocurrencies.
