SEC Warns it May Challenge FTX’s Stablecoin-Denominated Repayments Plan

The United States Securities and Exchange Commission (SEC) has cautioned that it may challenge the repayment plan of the collapsed cryptocurrency exchange, FTX, if the plan involves returning funds to creditors using stablecoins.

In a court filing on August 30 to the U.S. Bankruptcy Court in Delaware , SEC attorneys indicated that while repaying creditors with stablecoins might not be outright illegal, the agency reserves the right to contest such repayments if they involve US-dollar pegged crypto assets.

The move comes as FTX continues to explore various avenues to compensate its creditors after its dramatic collapse in November 2022.

FTX’s Plans to Repay Creditors

FTX has considered several strategies to make creditors whole, including a shelved plan to revive the exchange.

The latest proposal from FTX involves liquidating assets and settling claims based on the U.S. dollar value of those assets at the time of the exchange’s bankruptcy.

Creditors would be repaid in cash or stablecoins under this plan.

“The SEC is not opining on the legality, under federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets,” the regulator stated in its filing.

Moreover, the SEC pointed out that the current repayment plan has yet to designate a “distribution agent”—a firm that would oversee the distribution of funds to creditors, whether in cash or stablecoins.

The SEC’s stance has sparked criticism from notable figures in the crypto community.

Alex Thorn, head of research at Galaxy Digital, and Paul Grewal, Coinbase’s chief legal officer, have both publicly denounced the regulator’s approach.

Thorn accused the SEC of “jurisdictional overreach,” particularly in light of the agency dropping its case against Binance USD (BUSD) issuer Paxos in July.

Grewal echoed these sentiments, arguing that the SEC’s threats undermine clarity and stability in the market.

SEC Under Scrutiny

Meanwhile, the SEC has been facing growing criticism due to its “regulation-by-enforcement” approach to the crypto industry.

Critics argue that the SEC has failed to establish a clear regulatory framework for cryptocurrencies , opting instead to pursue legal action against key industry players.

As reported, a coalition of seven U.S. states has come together to challenge the Securities and Exchange Commission’s (SEC) regulation of cryptocurrency.

Led by Iowa Attorney General Brenna Bird, the states have filed an amicus brief arguing that the SEC’s attempt to regulate cryptocurrencies constitutes a “power grab” that would stifle innovation, harm the crypto industry, and exceed the agency’s authority.

The coalition includes Arkansas, Indiana, Kansas, Montana, Nebraska, with Oklahoma becoming the latest state to join.

Earlier this year, SEC Commissioner Hester Peirce said that the regulatory agency is currently operating in an “enforcement-only mode” when it comes to the regulation of cryptocurrencies.