The U.S. Securities and Exchange Commission (SEC) has cautioned that it might dispute payments made to creditors of the now-defunct crypto exchange FTX if the repayments are made using stablecoins.
In a filing on Aug. 30 to the U.S. Bankruptcy Court in Delaware, SEC lawyers stated that even though repaying creditors with stablecoins might not technically violate the law, the SEC still reserves the right to challenge any repayments made with U.S. dollar-pegged cryptocurrencies. After the exchange collapsed in Nov. 2022, FTX explored different ways to compensate its creditors, including a now-abandoned idea to relaunch the exchange.
FTX’s dollar payout plan faces SEC scrutiny
Many creditors have pushed for payments in the form of the original assets, but FTX’s latest plan involves paying out claims based on the US dollar value of the assets at the time of the bankruptcy, either in cash or stablecoins.
The SEC isn’t making any statements about whether the transactions in the plan are legal under federal securities laws. Moreover, the agency reserves the right to challenge any crypto asset transactions. The SEC pointed out that the current repayment plan hasn’t yet named a distribution agent, the company that would handle disbursing funds to creditors.
This warning sparked criticism from figures in the crypto community, including Paul Grewal, Coinbase’s chief legal officer, and Alex Thorn, head of research at Galaxy Digital. They accused the regulator of overreaching and making unfair threats toward FTX creditors.
On Sept. 1, Thorn posted on X, stating that the SEC is still holding onto the possibility of labeling dollar-backed stablecoins as “crypto asset securities,” even though they dropped their case against Binance USD (BUSD) issuer Paxos in July.
Additionally, Thorn argues that the SEC isn’t making a solid case. Instead, it seems unwilling to back down, holding onto its authority like a weapon, ready to strike at anyone who dares to use these simple and legitimate tools.
