SEC Might Challenge FTX Bankruptcy Estate From Paying Back Customers With Stablecoins

• The SEC has sought a change in the FTX's bankruptcy plan.
• It wants the bankruptcy administrators to remove a discharge provision and said it may challenge distribution transactions involving crypto assets.

The U.S. Securities and Exchange Commission (SEC) may have thrown a spanner in the wheels of the confirmation of the FTX bankruptcy plan, according to a court filing on Friday.

The SEC said that it may challenge any distributions involving crypto assets to creditors.

Earlier this year, the FTX bankruptcy estate proposed a plan, which would see 98% of creditors get back 118% of their claims – in cash – within 60 days of court approval.

The SEC said a previous filing by the FTX bankruptcy estate defined “cash” to include U.S. dollar pegged stablecoin.

That earlier FTX filing from Aug. 2 did define cash as "the legal tender of the United States of America or the equivalents thereof, including U.S. Dollar pegged Stablecoin, bank deposits, checks and other similar items."

"FTX Debtors are exploring different distribution options, including potentially distributing stablecoins to certain creditors," the SEC said in Friday's filing. "The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets."

The SEC also said "the Debtors have not identified the distribution agent, which may potentially distribute stablecoins to creditors under the Plan."

"This is the height of jurisdictional overreach," Galaxy Digital's head of research Alex Thorn posted on X. "The SEC doesn’t even make a case here. they are just unwilling to let it go. it’s a bludgeon they must keep sharp, lest any legitimate actors deign to wield these (boringly above-board) instruments."

The SEC also joined the U.S. Trustee in wanting a provision in the plan to discharge the Debtors deleted and said it reserves the right to object to confirmation of the plan if these changes are not made.