SEC Warns FTX Over Legality of Crypto Asset Distribution in Chapter 11 Plan

The U.S. Securities and Exchange Commission (SEC) has raised concerns over FTX’s plan to pay back claims using its “crypto asset securities.” The SEC’s Senior Trial Counsel, Therese Scheuer, has reserved the right to challenge these transactions under federal securities laws.

FTX’s Crypto Repayment Plan Faces Potential SEC Challenge

The FTX bankruptcy saga is moving along, with creditors now faced with the choice of pursuing claims through either the Bahamas or U.S. processes. Most customers are on track to get their full money back, plus an extra 9% interest for the trouble. For those with smaller claims under $50,000, the process is set to be even quicker, with 98% of customers likely to see their full repayment within 60 days after court approval. As for the bigger distributions, they’re expected to start rolling out in late 2024 or early 2025.

However, in a recent bankruptcy court filing, the SEC expressed reservations about the legality of FTX’s proposal to monetize and distribute its portfolio of crypto asset securities as part of its Chapter 11 reorganization plan. The SEC emphasized that it retains the authority to challenge any transactions involving these assets, raising concerns about potential violations of federal securities laws. Additionally, the agency noted that FTX has yet to specify the exchange entity responsible for distributing stablecoins to creditors, should that provision be approved.

The SEC’s filing is a response to FTX’s broader liquidation strategy, which includes selling off assets and winding down operations. Although FTX is seeking to resolve claims through asset liquidation, the SEC’s intervention suggests that the legality of using crypto assets in this manner may be subject to regulatory scrutiny. The SEC also requested the removal of a discharge provision from the proposed plan, signaling potential objections if FTX fails to address these legal concerns. The bankruptcy court has scheduled a hearing on the matter for October 7, 2024.

What do you think about the SEC warning FTX about the legality of specific crypto asset distributions? Share your thoughts and opinions about this subject in the comments section below. #Write2Earn