The U.S. Securities and Exchange Commission (SEC) has issued a warning to the bankrupt crypto exchange FTX regarding its proposed repayment plan for creditors.
SEC's Warning
In its latest filing, the SEC hinted that it may challenge FTX's plan if stablecoins or other cryptocurrencies are used for repayments. The regulator stated, 'The SEC is not opining on the legality, under the federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets.'
FTX's Restructuring Plan
FTX filed for bankruptcy in November 2022, facing an $8 billion deficit. Despite the uncertain future, the exchange's bankruptcy administrators discovered substantial digital assets, leading to a proposed restructuring plan. This plan aims to repay creditors up to 118 percent of their claims in cash. However, only those with claims of $50,000 or less are eligible, which covers 98 percent of all creditors. As part of the settlement, FTX had planned to repay creditors either in cash or USD-pegged stablecoins. Some creditors have requested payments in crypto, similar to arrangements made by other bankrupt crypto firms.
Reactions from the Crypto Community
The SEC's stance has drawn criticism from various quarters, including from Paul Grewal, Chief Legal Officer at Coinbase. Grewal has expressed frustration with the SEC’s approach, arguing that the agency’s reluctance to provide clear guidance on the legality of crypto transactions is unhelpful. 'The SEC didn't outright state that such an action would be illegal, writing, 'The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the Plan,' but notes that the agency, '...reserves its rights to challenge transactions…,' Grewal noted in his tweet.
Thus, FTX's planned debt settlement is facing numerous legal and regulatory challenges that need to be resolved before its final implementation.
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