SEC May Challenge FTX Bankruptcy Estate's Plan to Repay Creditors with Stablecoins

• The SEC may challenge any distributions involving crypto assets to creditors in the FTX bankruptcy plan, which includes the use of stablecoins.
• The SEC joined the U.S. Trustee in opposing a discharge provision in the FTX bankruptcy plan, seeking its removal.

The U.S. Securities and Exchange Commission (SEC) has raised concerns that could potentially delay the confirmation of FTX's bankruptcy plan. In a recent court filing, the SEC indicated that it might challenge any distributions involving crypto assets to creditors, which could include stablecoins.

This development follows an earlier proposal by the FTX bankruptcy estate, suggesting that 98% of creditors could receive 118% of their claims in cash within 60 days of court approval.

The SEC's concerns stem from an August 2 filing by the FTX bankruptcy estate, which defined "cash" to include U.S. dollar-pegged stablecoins. In its latest filing, the SEC stated,

"FTX Debtors are exploring different distribution options, including potentially distributing stablecoins to certain creditors."

The SEC clarified that it is not yet commenting on the legality of these transactions under federal securities laws but reserves the right to challenge any transactions involving crypto assets.

Additionally, the SEC joined the U.S. Trustee in opposing a discharge provision in the bankruptcy plan and demanded its removal. The agency emphasized that the plan has not yet identified the distribution agent, which could potentially distribute stablecoins to creditors.

Alex Thorn, Galaxy Digital's head of research, criticized the SEC’s stance, stating on X,

"This is the height of jurisdictional overreach. The SEC doesn’t even make a case here. they are just unwilling to let it go. it’s a bludgeon they must keep sharp, lest any legitimate actors deign to wield these (boringly above-board) instruments."

The SEC has reserved the right to object to the confirmation of FTX's bankruptcy plan if these changes are not made.

Edited by Harshajit Sarmah

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NewzchainHarshajit Sarmah