Throughout the FTX bankruptcy, various measures were explored or proposed to maximize creditor recovery, ranging from relaunching the FTX exchange to return money to creditors, to distributing the bonds as tradable tokens of a new business.
Several decentralized marketplaces, including Found.xyz and Figure Markets, launched support for tokenized FTX claims trading this summer, which one crypto CEO called “one of the most crypto-friendly things” he’s ever seen.
However, FTX, led by CEO John Ray III and legal counsel Sullivan & Cromwell, has dismissed the idea of restarting the exchange, arguing that investors would not be willing to invest the capital needed to turn around an offshore exchange. While some creditors have demanded in-kind distributions, i.e. repayment of lost cryptocurrencies in crypto rather than cash, as in the case of the BlockFi and Genesis bankruptcies, FTX’s current plan is to repay creditors in cash or stablecoins pegged to the US dollar.
Now, in a recent filing, the SEC has warned FTX that it has the right to challenge the legality of making money or redeeming claims through “cryptocurrency asset securities.” The SEC’s filing also notes that there are no specifics on who would distribute the stablecoin if the provision is approved.
The SEC did not specifically state that such actions were illegal, writing, “The SEC does not comment on the legality of these actions.”
Federal securities laws, transactions described in the plan,” but the agency notes that it “reserves the right to object to transactions involving crypto assets.”
The SEC also opposed the plan’s exemption provisions, which protect FTX debtors from future legal action by creditors, along with the U.S. bankruptcy trustee overseeing the bankruptcy. “Unless the plan provides for a discharge and the exemption order is removed, the court should decline to confirm,” the U.S. bankruptcy trustee wrote in a filing, citing relevant law.
Administrative costs due to FTX’s bankruptcy have skyrocketed since the exchange collapsed. According to X user Mr. Purple, the fees requested by employees recently surpassed $800 million.
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