In summary
- The SEC said it “reserves its rights” to object to FTX trustees’ proposals to pay creditors in stablecoins.
- In a court filing, the SEC said it is not commenting on the legality of the transactions and reserves the right to challenge transactions involving crypto assets.
- The news comes after FTX, which has been bankrupt since November 2022, agreed to a plan to pay its creditors between $14.5 billion and $16.3 billion by May 2024.
The US Securities and Exchange Commission (SEC) has said it “reserves its rights” to object to proposals by FTX’s managers to pay creditors in stablecoins.
In a court filing released Friday, the regulator said it is “not opining on the legality, under federal securities laws, of the transactions described in the Plan and reserves its rights to challenge transactions involving cryptoassets.”
The SEC also noted that the trustees of the FTX estate “have not identified the distribution agent, which could potentially distribute stablecoins to creditors under the Plan.”
The news comes after the bankrupt Cryptocurrency exchange, which unexpectedly crashed in November 2022, agreed to a plan to pay its creditors between $14.5 billion and $16.3 billion in total compensation by May 2024.
The approved restructuring plan would have given debtors up to 118% of their claims in cash, although only those claiming less than $50,000 would have been eligible for refunds.
The SEC and stablecoins
The SEC’s latest statement may contradict some of the regulator’s previous statements on the state of stablecoins.
In August, another SEC filing said “Cash” could include “US dollar-pegged stablecoins” along with traditional financial instruments like bank deposits and checks.
If approved, this wouldn’t be the first time we’ve seen a bankrupt crypto firm pay former users in crypto rather than cash. Fallen lender BlockFi did this in July 2024, returning tokens to customers via Coinbase.
Whether stablecoins can be considered simply cash, or “cryptoassets,” has long been a point of contention between the SEC and many of the world’s largest cryptocurrency firms.
One of the world’s largest stablecoin providers, Paxos, won a court case in July this year in which the SEC attempted to classify its Binance-branded BUSD stablecoin as a “cryptoasset.”
SEC Chairman Gary Gensler has criticized stablecoins in the past, saying in August 2021 that they “may help facilitate those seeking to circumvent a range of public policy objectives.”
The SEC’s latest statement has drawn criticism from some in the cryptocurrency world over its continued attitude toward stablecoins.
In a tweetAlex Thorn, head of research at Galaxy Research, called the statement “the height of jurisdictional overreach.”
Thorn argued that the SEC “doesn’t even make a case here,” and that its efforts are “a stick they must keep sharp, lest legitimate actors deign to use these (boringly legitimate) tools.”
The size of FTX’s legal fees may indicate the ongoing complexity of the case, with professional fees exceeding the $800 million threshold, according to one estimate.
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