CryptoSEC May Challenge FTX's Plan to Repay Users in Stablecoins

SEC May Challenge FTX’s Plan to Repay Users in Stablecoins

The U.S. Securities and Exchange Commission (SEC) is considering challenging bankrupt cryptocurrency exchange FTX’s proposal to repay users in stablecoins, according to a recent court filing. The SEC insists on its authority to scrutinize and potentially oppose transactions involving crypto assets.

Stablecoins, which are cryptocurrencies typically pegged to stable assets like the U.S. dollar, are central to the controversy. FTX, once the world’s third-largest crypto exchange, collapsed in November 2022 and subsequently filed for bankruptcy. The downfall led to the conviction of FTX founder Sam Bankman-Fried in November 2023 on charges including money laundering, wire fraud, and conspiracy. The jury determined that Bankman-Fried had misappropriated $8 billion in customer funds, leading to a judge ordering him to forfeit $11 billion in assets and sentencing him to 25 years in prison.

Amid the bankruptcy proceedings, FTX proposed a restructuring plan this spring, pledging to repay up to $16.3 billion to its users. The plan included a promise to return up to 118% in cash for users owed less than $50,000. However, the SEC expressed concerns about the legality of the repayment plan, particularly regarding the use of stablecoins.

The SEC’s reservations are partly rooted in the ambiguous legal status of stablecoins under current securities laws. The regulatory body has long debated whether certain cryptocurrencies, including stablecoins, should be classified as securities, which would subject them to SEC regulations.

SEC Chair Gary Gensler has previously voiced concerns about stablecoins, warning of their potential risks. In April 2022, Gensler highlighted the public policy challenges posed by stablecoins, particularly regarding financial stability and monetary policy. He also likened stablecoins to “poker chips at the casino” during a 2021 interview, suggesting that their use could lead to financial harm for Americans.

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Andrew
Andrew
Self-taught investor with over 5 years of financial trading experience Author of numerous articles for hedge funds with over $5 billion in cumulative AUM and Worked with several global financial institutions. After finding success using his financial acumen to build an investment portfolio, Andrew began writing and editing articles about the cryptocurrency space for sites such as chaincryptocoins.com, ensuring readers were kept up to date on hot topics such as Bitcoin and The latest news on digital currencies and Ethereum.

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