The SEC has issued a warning to bankrupt crypto exchange FTX regarding its proposed repayment plan for creditors. The regulator expresses concerns about the use of stablecoins and other cryptocurrencies for repayments.
FTX's Restructuring Plan and Its Challenges
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. 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. However, the SEC's recent filing reveals that the regulator has concerns about this approach. It highlights a lack of clarity regarding who would manage the distribution of stablecoins and questions the regulatory implications of such payments. Even though the SEC does not outright oppose stablecoin payments, it points out that clear guidelines and regulatory compliance are necessary.
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.
Future Steps
Alongside the SEC, the U.S. Trustee has also objected to the bankruptcy plan, particularly criticizing a provision that would shield FTX debtors from future legal actions. The Trustee has urged the court to reject the plan unless it explicitly removes this discharge provision. Grewal contends that investors and market participants deserve better clarity and more constructive regulatory engagement.
The SEC's stance emphasizes the need for clarity and regulatory compliance in repaying creditors. Further developments and court decisions are expected to influence the future of FTX's restructuring plans.
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