SEC Demands Changes to FTX Bankruptcy Plan

The bankrupt FTX reorganization plan has encountered another setback, with the US Securities and Exchange Commission (SEC) reserving the right to challenge it.

This development follows the exchange’s recent claim that its reorganization plan had garnered significant preliminary support from creditors.

SEC’s Objections to FTX Reorganization Plan

In a court filing dated August 30, the SEC outlined its concerns, stating it may object to the plan’s confirmation if specific changes are not made. Specifically, the SEC has demanded the removal of the discharge provision from the plan and proposed confirmation order, along with other modifications.

“The SEC has requested that the Debtors delete the discharge provision from the Plan and proposed confirmation order and has also asked the Debtors to make certain other changes to the Plan and proposed confirmation order. The SEC reserves the right to object to confirmation of the Plan if these changes are not made,” the SEC wrote.

This request mirrors concerns raised by Andrew R. Vara, the US Trustee managing the FTX bankruptcy case. Vara argued that the plan offers excessive legal protections to the estate’s administrators and advisers beyond what is typical under relevant statutes. He emphasized that such immunity is unnecessary for professionals whose employment and compensation are already subject to court approval.

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Furthermore, the SEC has reserved rights concerning crypto asset securities that FTX may liquidate or distribute to creditors. While the SEC has not specified whether these transactions comply with federal securities laws, it has kept the door open to challenge transactions involving crypto assets.

Indeed, this action aligns with the SEC’s broader stance under Gary Gensler’s leadership, which has classified numerous crypto assets as securities. Notably, the Gensler-led commission has identified over 20 crypto tokens, including Solana and Polygon, as securities in major lawsuits against firms like Coinbase and Binance.

“Of course SEC reserves rights relating to ‘crypto asset securities,’ a non-sensical term given the utter lack of regulatory clarity from the SEC. They also reserve the right to try to block stablecoin distributions. This is likely legal posturing but still obnoxious,” Mr Purple wrote.

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Meanwhile, Finance lawyer Scott Johnson commented on the SEC’s filing. According to him, the SEC’s reservation of rights regarding the distribution of the FTX estate’s cash in USD stablecoins reflects its “constant stonewalling” of the emerging industry.

“Our good friends at the SEC reserving rights to object to distribution of the FTX estate’s “Cash” in the form of USD stablecoins. They’ve requested the Debtors remove the provision. I wouldn’t read too far into it, but indicative of the constant stonewalling,” he stated.