The United States' Securities and Exchange Commission (SEC) has signaled a possible (although unlikely) opposition to FTX’s bankruptcy plan, particularly concerning distributions involving stablecoins. According to a recent court filing, the SEC entered a formal reservation of rights in respect of transactions contemplated by the bankruptcy plan that involve the distribution of crypto assets, like US dollar-pegged stablecoins, to creditors.
The bankruptcy estate of FTX proposed a plan earlier this year that promised 98% of creditors a return of 118% of their claims, primarily in cash, within 60 days of court approval. However, the definition of "cash" included stablecoins, which the SEC flagged in its filing on Friday. While the SEC has not yet adopted a position on the plan, it has reserved it rights to challenge the legality of such transactions under federal securities laws, while unhelpfully not giving any guidance as to how the plan should proceed to be compliant.
The SEC is not opining as to 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 also seems to object to the plan's failure to identify a distribution agent for crypto-assets, presumably on the basis that it would seek to challenge such agent's authorizations to perform that role under US securities law. Once again the SEC has not put forward any legal basis for an objection and continues to use the phrase "crypto asset securities" which appears in no US law and which has been criticised by judges in at least one case brought by the SEC.
Despite not explicitly blocking the use of stablecoins, the SEC’s stance has added another layer of uncertainty to FTX’s already complex bankruptcy proceedings.
Industry players took to X to vent their frustrations.
The SEC and the US Trustee have also called for the removal of a discharge provision in FTX’s plan, which would limit certain legal claims against the estate (seemingly with a view to advancing further claims against the exchange). Both parties have reserved the right to object to the overall plan’s confirmation if their concerns are not addressed.
FTX’s creditors, who have been waiting for resolution following the platform’s collapse now face potential further delays as the court assesses the SEC’s objections and the potential implications for crypto asset distributions.
The defunct exchange’s restructuring plan has been overwhelming approved by creditors and is set for consideration by the bankruptcy court on 7 October. If approved, the plan could see creditors with claims of less than US$50,000 obtain distributions within 60 days of the effective date of the plan.
By Steven Pettigrove, Luke Misthos and Michael Bacina
Comments