FTX repayment plan faces roadblock as SEC questions stablecoin use
The United States Securities and Exchange Commission (SEC) has raised concerns over the proposed repayment strategy by the bankrupt crypto exchange FTX (CRYPTO:FTT), potentially setting the stage for legal challenges.
The SEC's reservations focus on the use of stablecoins for creditor repayments, as outlined in a filing with the United States Bankruptcy Court in Delaware dated August 30.
The regulatory body is questioning the legality and oversight of crypto assets included in the repayment plan.
FTX, once a major player in the cryptocurrency exchange market, filed for Chapter 11 bankruptcy in late 2022 following a rapid downfall.
The recent filing shows the SEC’s critical view of the proposed distribution methods in FTX's Chapter 11 Plan, particularly regarding the use of stablecoins—cryptocurrencies pegged to stable assets like the US dollar.
While the SEC does not explicitly label these transactions as illegal, it asserts its right to challenge them under US securities laws.
The filing states that “the Debtors are exploring different distribution options, including potentially distributing stablecoins to certain creditors,” and the SEC “reserves its rights to challenge transactions involving crypto assets.”
Additionally, the SEC has demanded the removal of the discharge provision from FTX’s Plan and the proposed confirmation order, alongside other amendments.
The regulatory body has also reserved the right to object to the approval of the plan if these changes are not made.
This stance by the SEC, however, appears inconsistent.
While it recently dropped enforcement actions against some stablecoin operators, it continues to reserve the right to classify dollar-backed stablecoins as "crypto asset securities."
Alex Thorn, head of research at Galaxy Digital, criticised the SEC’s approach, calling it "jurisdictional overreach."
He noted that “no one, including most other regulators and both parties, thinks the SEC should have oversight of genuine ‘number stay flat’ technologies.”
The next hearing, set for October 7, 2024, will be pivotal in determining whether FTX's repayment plan can move forward under the scrutiny of SEC regulations.
Industry stakeholders are closely watching this development, as the outcome could set a precedent for how stablecoins and other crypto assets are regulated in bankruptcy cases.
At the time of reporting, the FTX Token (FTT) price was $1.31.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
HYPE Cryptocurrency Soars 74% Amid Hyperliquid Airdrops of Over $1,2 Billion
SEC Charges Touzi Capital with $100 Million Cryptocurrency Fraud
Is JPMorgan Shaping US Policies? Trump's Alleged Secret Meetings With Jamie Dimon Spark Speculation
Immutable X is Breaking Out: How High Can IMX Climb?