The SEC Is Threatening to Oppose FTX's Plan to Repay Users in Stablecoins

The U.S. Securities and Exchange Commission (SEC) is threatening to oppose FTX's plan to repay users in stablecoins.

The U.S. Securities and Exchange Commission (SEC) is threatening to oppose FTX's plan to repay users in stablecoins. In a filing last week, the agency reaffirmed its authority to "challenge transactions involving crypto assets," even when those assets, like stablecoins, are pegged to the U.S. dollar. This move could further complicate the bankrupt crypto exchange’s efforts to return funds to its creditors.

This spring, FTX proposed a plan to repay up to $16.3 billion to users who have been unable to access their funds since the platform's collapse in November 2022. Creditors prefer in-kind payments that would have allowed them to capture cryptocurrencies’ 122% gain since the collapse, but FTX’s liquidation plan aims to settle claims either in cash or stablecoins, based on the dollar value of assets at the time of bankruptcy.

No specific stablecoin has been selected for the repayment plan. The two largest by market value are Tether Tether (USDT) and USD Coin (USDC USDC ), with market capitalizations of $118 billion and $35 billion, respectively. However, both have faced controversy. Industry leader Tether has yet to provide financial statements audited by certified public accountants. On the other hand, while USDC issuer, Circle, has built a reputation for being more transparent and friendly to regulators, it faced a $3.3 billion exposure when its deposits at Silicon Valley Bank temporarily became inaccessible during the bank's collapse in March 2023. All uninsured assets were eventually covered, preventing any loss to Circle's reserves. Although multiple efforts have been made to pass stablecoin legislation in Congress, none have materialized so far.

This regulatory ambiguity could delay payouts or impact how they are processed.

“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 regulator stated in an August 30 filing. This stance mirrors its earlier filing in June, where it also objected to a provision in the plan that would protect the exchange from future legal liabilities.

The SEC also raised concerns that FTX has yet to designate a "distribution agent"—the entity responsible for handling the payouts.

FTX has not responded to Forbes’ request for comment at press time.

Industry insiders have expressed frustration with the SEC’s approach. Alex Thorn, head of research at Galaxy Digital, which was hired in September 2023 as an investment manager for FTX, took to X to express his discontent: “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.”

“Why provide clarity to the market when threats and aspersions will do?” wrote Paul Grewal, chief legal officer at Coinbase, on X. “Investors, consumers and markets deserve better. Way better.” Coinbase has served as a distribution agent in other high-profile crypto bankruptcies, including Celsius and BlockFi.

The SEC’s actions parallel its involvement in the bankruptcy of Voyager Digital, a crypto brokerage that filed for Chapter 11 in New York in July 2022. In that case, judge Michael Wiles criticized the SEC for initially refusing to state its position publicly. Once forced to address the matter, the SEC suggested that Voyager's VGX token had aspects of a security, although the agency never took a definitive stance. Voyager had planned to repay customers using the same types of cryptocurrencies they had in their accounts, with USDC being used for unsupported assets or the proprietary VGX token. Wiles condemned the SEC’s vague objections, stating, “I cannot simply put the entire case into an indeterminate and expensive deep freeze while regulators figure out whether they do or do not think there is any problem with the transactions that are being proposed. If there is a problem, I expect a regulator to tell me that it has an actual objection (as opposed to saying that there "might" be an issue), and also to tell me what the issue is and why it is an issue.”

The increased attention on the SEC’s stance in this case may be politically driven, according to bankruptcy specialist and FTX creditor advocate Kyle (last name withheld), known as "Mr. Purple" on X: “I think the reason it's getting more news today is because, in theory, if there was a political reset with regards to crypto, as announced by Kamala Harris’s campaign, you would think that the SEC would back off on bringing more enforcement actions, not keep adding to the fire.”

FTX creditor Sunil Kavuri voiced optimism for a swift resolution: “We're hopeful judge Dorsey will follow the same school of thought as the Voyager judge.”

Key upcoming dates in the case include the anticipated release of an independent examiner’s

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