SEC Threatens to Oppose FTX’s Stablecoin-Denominated Repayment Plan
The United States Securities and Exchange Commission has threatened to oppose the proposed plan for repayment by the now-collapsed cryptocurrency exchange FTX in case it provides for returning money to creditors using stablecoins. The warning from the SEC could present potential legal complexities for FTX as it tries to work its way through the complex bankruptcy process.
Plans by FTX for Creditor Repayment
Since its spectacular collapse back in November 2022, FTX has considered a number of ways it might repay creditors. One of the more recent proposals would liquidate assets and settle claims against the U.S. dollar value of those assets at a snapshot in time of the day the exchange went bankrupt. Under this plan, the repayments would come in cash or stablecoins.
But lawyers for the SEC indicated, in an August 30 filing to the U.S. Bankruptcy Court in Delaware, that while the repayment of creditors with a stablecoin might not be wholly illegal, the agency retains its rights to challenge such repayments when cases involve US-dollar-pegged crypto assets.
Anything else, the SEC is not opining on the legality, under federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets,” the regulator wrote in its filing.
Finally, the SEC pointed out that even the repayment plan currently before the court still lacks a “distribution agent”-that would be a company responsible for distributing money to creditors, either as cash or as stablecoins.
Crypto Community Reacts to SEC’s Stance
The position of the SEC hasn’t gone through without “flying under the radar” within the crypto community. Alex Thorn, head of research at Galaxy Digital, and Paul Grewal, Coinbase’s chief legal officer, are among those who have publicly attacked the watchdog’s approach. Thorn closely criticized the SEC for “jurisdictional overreach,” especially in light of the agency having dropped its case against Binance USD issuer Paxos back in July. Grewal agreed with him, saying that the threats by the SEC undermine clarity and stability in the market.
SEC in the Crosshairs
The latest move by the SEC comes amid growing criticism of its method of regulating the cryptocurrency industry through what many have termed “regulation-by-enforcement”. Critics state that the SEC has failed to put in place a clear regime for regulating cryptocurrencies and has instead opted to simply file court cases against major participants in the industry.
Seven U.S. states have also weighed in on the matter of cryptocurrency regulation by the SEC. The states, through Attorney General Brenna Bird of Iowa, filed an amicus brief and argued that the SEC attempts at regulating cryptocurrencies represent a “power grab” that will choke off innovation, injure the crypto industry, and be beyond its authority.
The coalition membership of Arkansas, Indiana, Kansas, Montana, Nebraska, and Oklahoma represents an increasing pushback on what many consider overreach by the SEC in its regulation efforts.
SEC Commissioner Hester Peirce commented this year that the regulatory agency was currently working under an “enforcement-only mode” when it came to regulating cryptocurrencies, further heating up debates about the role of the SEC in the evolving crypto landscape.
