SEC Cautions That It Might Contest FTX Strategy for Repayments in Stablecoin.

In a court submission on August 30 to the U.S. Bankruptcy Court in Delaware, SEC lawyers stated that while using stablecoins for creditor repayments may not be explicitly illegal, the agency retains the authority to challenge these repayments if they involve US-dollar pegged cryptocurrencies.

This warning comes as FTX seeks different methods to reimburse its creditors following its significant collapse in November 2022.

FTX's Strategy for Creditor Repayment  

FTX has explored various approaches to compensate its creditors, including a previously abandoned idea to relaunch the exchange.  

The most recent proposal from FTX entails liquidating assets and addressing claims according to the U.S. dollar value of those assets at the time of the exchange's bankruptcy.  

Under this plan, creditors would receive repayment in cash or stablecoins.

"The SEC is not making a determination regarding the legality of the transactions described in the Plan under federal securities laws and maintains its right to contest transactions involving crypto assets," the agency stated in its filing.

Additionally, the SEC highlighted that the current repayment plan has not yet appointed a "distribution agent"—a company responsible for managing the distribution of funds to creditors, whether in cash or stablecoins.

The SEC's position has drawn criticism from prominent members of the crypto community.

Alex Thorn, head of research at Galaxy Digital, and Paul Grewal, Coinbase’s chief legal officer, have both openly criticized the regulator's approach.

Thorn accused the SEC of "jurisdictional overreach," especially considering the agency's decision to drop its case against the issuer of Binance USD (BUSD), Paxos, in July.