The U.S. Securities and Exchange Commission (SEC) has issued a warning that it may contest FTX’s proposed repayment plan if it involves compensating creditors with stablecoins. This caution was detailed in a court filing submitted on August 30 to the U.S. Bankruptcy Court in Delaware.
While the SEC has not declared stablecoin repayments illegal, it reserves the right to challenge such plans if they involve US-dollar-pegged crypto assets. This development comes as FTX seeks ways to address its obligations to creditors following its collapse in November 2022.
FTX’s Repayment Strategies
FTX is considering multiple approaches to settle its debts, including the possibility of reviving the exchange, which has since been put on hold. The latest proposal involves liquidating FTX’s assets and using their U.S. dollar value at the time of bankruptcy to settle claims. Creditors would receive repayment in either cash or stablecoins under this plan.
The SEC has highlighted that the current repayment proposal does not yet include a “distribution agent” to manage the dispersal of funds, whether in cash or stablecoins. The agency’s filing indicates it is reserving its right to challenge transactions involving crypto assets, although it has not made any definitive statements on the legality of such transactions under federal securities laws.
Reactions and Criticisms
The SEC’s position has drawn criticism from notable figures in the cryptocurrency industry. Alex Thorn, head of research at Galaxy Digital, accused the SEC of “jurisdictional overreach,” especially given the regulator’s recent decision to drop its case against Binance USD (BUSD) issuer Paxos in July. Coinbase’s Chief Legal Officer, Paul Grewal, also criticized the SEC’s stance, arguing that it undermines market clarity and stability.
Broader SEC Scrutiny
The SEC faces mounting criticism for its “regulation-by-enforcement” approach to the crypto industry. Critics argue that the agency has not provided a clear regulatory framework for cryptocurrencies and instead relies on legal actions against major industry players.
A coalition of seven U.S. states, led by Iowa Attorney General Brenna Bird, has challenged the SEC’s approach. These states, including Arkansas, Indiana, Kansas, Montana, Nebraska, and recently Oklahoma, have filed an amicus brief asserting that the SEC’s regulatory actions represent an overreach that could stifle innovation and exceed its authority.
Earlier this year, SEC Commissioner Hester Peirce criticized the agency’s current stance, describing it as operating in an “enforcement-only mode” regarding cryptocurrency regulation.