SEC criticized for dubious stablecoin stance in FTX bankruptcy

The Securities and Exchange Commission is facing criticism for its latest filing for FTX bankruptcy, which echoes its controversial approach in the Voyager case.

The SEC warned entity FTX in a recent filing that it may oppose plans to pay creditors with stablecoins or other digital assets due to potential legal concerns.

This means that the SEC may object to FTX’s plan to pay creditors in cash or stablecoins pegged to the U.S. dollar, despite its objections to the provision protecting FTX from future legal liability.

Attorney and strategic advisor James Murphy criticized Voyager’s 2022 bankruptcy on Sept. 2 and the SEC’s repeated vague tactic regarding cryptocurrency transactions and clarity, which critics argue is delaying the bankruptcy process.

The SEC tried the same cover-up tactic in the Voyager bankruptcy, and the judge there rightly rejected it:

Voyager jury:
“I can’t put the whole case in an uncertain and expensive freezer while regulators decide whether to do this or not… https://t.co/fslRv2tMXZ

— MetaLawMan (@MetaLawMan) September 2, 2024

In the case of Voyager’s bankruptcy, the company filed for Chapter 11 bankruptcy in July 2022 after experiencing significant financial difficulties, largely due to the bankruptcy of its primary debtor, Three Arrows Capital.

The SEC has been keeping a close eye on Voyager’s plans to refund customers using stablecoins, expressing concern that such refunds could be considered unregistered securities, complicating the bankruptcy resolution and causing delays and legal challenges.

Murphy criticized the SEC’s vague objections to stablecoins during the process, saying regulators should make it clear if they have any concerns.

Latest SEC FTX filing

The SEC’s latest filing in the FTX case warns that it could once again question the legality of paying creditors with stablecoins or other digital assets, but the agency stopped short of declaring such actions illegal and reserves the right to appeal in the future.

This repeated uncertainty has drawn the ire of industry watchdogs who believe the SEC is undermining its mission to protect investors.

The SEC did not explicitly state that such an action would be illegal, writing: “The SEC expresses no opinion as to the legality of the SEC’s conduct.
The transactions outlined in the Plan are “conformant to federal securities laws,” but the agency notes that it “reserves the right to object to the transactions… https://t.co/zAMqY7mTcd

— paulgrewal.eth (@iampaulgrewal) September 1, 2024

“Investors, consumers, and markets deserve better. Much better,” Coinbase Chief Legal Officer Paul Grewal tweeted in response to the lack of transparency.

Critics argue that the SEC’s approach adds more uncertainty to the already complex bankruptcy process, calling into question whether this strategy truly serves investors’ interests or simply prolongs the bankruptcy process.