FTX’s Settlement Efforts Could Hit Roadblock Because of the SEC: Here’s Why
FTX's repayment plan could a snag, thanks to the SEC. (Photo by Evelyn Hockstein-Pool/Getty Images)
- FTX creditors might have to wait a little longer for their refunds, thanks to the SEC.
- SEC has filed a motion in the bankruptcy court objecting to the FTX’s mode of settlement.
- The SEC claimed that while crypto stablecoin payouts are not illegal, the agency reserves the right to contest such repayments because they include crypto assets.
As FTX’s creditors and customers inch closer to a long-awaited payout, with the company’s Chapter 11 plan on the verge of approval, the process could hit a potential snag.
The Securities and Exchange Commission (SEC) has raised concerns that may yet upset the plan’s prospects, threatening to disrupt the progress made toward resolving the debt obligations of the defunct cryptocurrency exchange.
SEC Warns Against Crypto Stablecoin Payment
The SEC has injected a fresh dose of uncertainty into FTX’s closely watched bankruptcy case, challenging the company’s plan to repay creditors in stablecoins.
In a court filing on Aug. 30, the agency flagged a potential snag in the proposed repayment process, arguing that while stablecoin payments may not be illegal, they could still be contested due to the involvement of crypto assets.
The court filing said that 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.”
A key point of contention was the lack of clarity on who would be responsible for distributing the stablecoins to creditors, as the repayment plan failed to provide adequate details.
The SEC also took issue with a clause in the plan that prohibited creditors from taking any future legal action, arguing that this provision could potentially leave creditors unprotected.
In its filing, the SEC urged the court to deny confirmation of the plan unless the clause was removed and creditors’ rights were safeguarded.
“Unless the Plan provides that the Debtors shall not receive a discharge and removes any discharge injunction, the Court should deny confirmation,”
The SEC’s objection to the reimbursement plan could mean FTX creditors must wait a little longer.
The implications of the SEC’s objection extend far beyond FTX’s bankruptcy case. A court decision upholding the agency’s concerns could have a lasting impact on future settlements involving crypto and stablecoin payments.
If FTX were to contest the SEC’s objection, the outcome could set a precedent for other crypto companies navigating crypto reimbursements.
FTX’s Bankruptcy: A Never Ending Saga
FTX bankruptcy proceedings explored multiple avenues for paying back creditors. The plans ranged from selling critical assets of the exchange-owned entities to reviving the exchange.
In the end, a cash-out proposal was accepted under which FTX liquidated the assets and settled claims based on the U.S. dollar value of those assets at the time of the exchange’s bankruptcy.
Under this plan, creditors would be repaid in cash or stablecoins.
The creditors of the collapsed exchange would have preferred crypto assets over cash and in-kind value since the price of most crypto assets has surged over 200-300% over the past two years.
However, looking at the history of such settlements, getting an equivalent value seems like a big win as well.
For example, the creditors of the Mt. Gox exchange who lost their valuable Bitcoin and Bitcoin Cash in the 2011 hack would have seen their lost assets grow by several folds.
However, the settlement claims offer only an equivalent value of the asset at the time of submission rather than its current value.
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