TLDR:
SEC may challenge FTX’s plan to pay creditors in stablecoins
FTX proposed paying up to 118% of creditors’ assets
SEC reserves right to challenge transactions involving crypto assets
A group of FTX creditors opposed the redistribution plan
SEC joined U.S. Trustee in objecting to a discharge provision in the bankruptcy plan
The Securities and Exchange Commission (SEC) has indicated it may challenge FTX’s plan to repay creditors using stablecoins.
FTX, which filed for bankruptcy in November 2022 with an $8 billion deficit, has proposed a restructuring plan that could potentially repay creditors up to 118% of their claims.
This plan, which would primarily benefit creditors with claims of $50,000 or less, has been met with mixed reactions from various stakeholders.
the SEC is again reserving the right to claim dollar-backed stablecoins are “crypto asset securities,” despite dropping their enforcement against paxos and losing their MTD on BUSD against binance in july
this is the height of jurisdictional overreach
it’s quite absurd if you… pic.twitter.com/laT6vY5i6T
— Alex Thorn (@intangiblecoins) September 1, 2024
In a motion filed last Friday, the SEC expressed concerns about the use of stablecoins for creditor repayments. The regulatory body stated,
“The SEC is not opining on the legality, under the federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets.”
The SEC’s filing highlighted that FTX’s portfolio includes crypto asset securities, which the debtors may seek to monetize or distribute according to the plan.
The regulator also noted that FTX is exploring different distribution options, including the potential distribution of stablecoins to certain creditors.
This development comes after FTX’s bankruptcy administrators found a substantial amount of digital currency holdings and other assets, allowing for a more optimistic repayment scenario than initially expected.
The proposed plan would see non-governmental creditors receive their claims in full, along with 9% interest calculated from the date of the bankruptcy filing.
However, the plan has faced opposition from some creditors who argue it may not be in their best interest. These creditors have pointed out that payments in fiat currency could potentially create tax liabilities.
The SEC’s recent filing adds another layer of scrutiny to the repayment process. The regulator has emphasized that FTX has not yet identified the distribution agent who may potentially distribute stablecoins to creditors under the plan.
The SEC has joined the U.S. Trustee overseeing the bankruptcy in objecting to a discharge provision in the bankruptcy plan. This provision would indemnify the FTX debtors from future legal actions by creditors.
The bankruptcy proceedings have already incurred significant costs, with fees reportedly surpassing $800 million. Despite these challenges, FTX had agreed to pay 98% of its creditors, including individual investors who held $50,000 or less with the exchange, as of May 2024.
It’s worth noting that FTX’s founder and former CEO, Sam Bankman-Fried, received a 25-year prison sentence earlier this year. The exchange also settled charges brought by the Commodity Futures Trading Commission, agreeing to pay $12.7 billion.
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