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SEC Warns of Legal Challenges Over FTX’s Stablecoin Payments to Creditors

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icon 02/09/24
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SEC Warns of Legal Challenges Over FTX’s Stablecoin Payments to Creditors

The U.S. Securities and Exchange Commission (SEC) has issued a warning regarding potential legal challenges to payments made to creditors of the now-defunct crypto exchange FTX, particularly if those payments are executed using stablecoins. In a recent court filing, SEC attorneys stated that although these repayments with US-dollar pegged crypto assets might not be illegal per se, the agency retains the right to contest such transactions.

Following FTX’s collapse in November 2022, the exchange has been exploring various avenues to reimburse its creditors. Among the options considered was a previously proposed plan to revive the exchange, which has since been discarded. Many creditors have expressed a preference for receiving payments in kind; however, FTX’s latest liquidation strategy outlines the intention to settle claims based on the U.S. dollar equivalent of asset values at the time of bankruptcy, either in cash or stablecoins.

The SEC clarified that its current stance does not provide a definitive legal interpretation of the payments outlined in the repayment plan and emphasized that it could challenge transactions involving crypto assets. Furthermore, it highlighted the absence of a designated “distribution agent” — a crucial role responsible for handling the distribution of funds to creditors.

The SEC’s announcement has sparked criticism from several figures in the cryptocurrency sector. Notably, some prominent industry leaders have accused the agency of overstepping its authority and making unfounded threats against FTX’s creditors. Concerns have been raised about the SEC’s classification of dollar-backed stablecoins as potential securities, particularly in light of its recent decision to drop a legal case against the issuer of Paxos’ Binance USD stablecoin.

This ongoing tension underscores the complexities surrounding regulatory oversight in the cryptocurrency landscape and raises questions about the clarity of the SEC’s stance on stablecoin assets, leaving investors and market participants seeking more comprehensive guidance.

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