SEC’s Intent to Challenge FTX Creditor Payments Sparks Outrage

On August 30, the SEC informed the U.S. Bankruptcy Court in Delaware of its intention to challenge payments to creditors of the defunct cryptocurrency exchange FTX, which are denominated in stablecoins. The relevant document has been published on the restructuring agent Kroll’s website.

The latest proposed liquidation plan for FTX includes settling creditor claims based on the value of assets in U.S. dollars at the time of the platform’s bankruptcy, either in cash or stablecoins.

According to the regulator, such payments are not technically illegal, but it “reserves the right” to contest these transactions.

The SEC also noted that the current repayment plan lacks an appointed agent responsible for distributing funds among creditors.

The Commission’s statement has faced criticism from the crypto community. Alex Thorn, Head of Research at Galaxy Digital, called the attempt to equate stablecoins with securities “absurd,” considering the previously dropped case against Paxos, the issuer of Binance USD (BUSD).

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

“The SEC isn’t even making any charges, they just can’t let it go. It’s like a club they have to keep ready so no legitimate actor dares to use these boring, honest instruments,” wrote Thorn.

Coinbase’s Chief Legal Officer Paul Grewal added that the SEC is resorting to “threats and slander,” and that the market and investors “deserve much better.”

In late August, FTX announced overwhelming creditor support for the updated reorganization plan of the exchange. The final figures will be submitted to the District Court in Delaware before the hearing on October 7, 2024.