The U.S. Securities and Exchange Commission (SEC) has signaled potential opposition to the FTX bankruptcy estate’s plan to distribute funds to creditors, particularly if the plan involves using stablecoins as a form of repayment. This development, revealed in a court filing on Friday, could complicate the process of returning funds to those affected by the collapse of the cryptocurrency exchange.

Earlier this year, the FTX bankruptcy estate proposed a plan to repay 98% of its creditors with 118% of their claims in cash, aiming for distribution within 60 days of court approval. The estate's definition of "cash" in its August 2 filing included U.S. dollar-pegged stablecoins.

However, the SEC has raised concerns about this approach, stating that it may challenge any transactions involving crypto assets as part of the repayment plan. In its filing, the SEC noted that "FTX Debtors are exploring different distribution options, including potentially distributing stablecoins to certain creditors." The commission emphasized that it is not taking a definitive stance on the legality of these transactions under federal securities laws but reserves the right to challenge them.

The SEC's intervention stems from broader concerns about the regulatory status of stablecoins and their use in financial transactions. The commission's filing also highlighted that the bankruptcy administrators have not yet identified the distribution agent responsible for potentially disbursing stablecoins to creditors, adding another layer of uncertainty to the process.

Additionally, the SEC joined the U.S. Trustee in objecting to a provision in the bankruptcy plan that would discharge the Debtors, suggesting that this provision be removed. The SEC stated that it would reserve the right to object to the confirmation of the plan if these changes are not implemented.

Alex Thorn, head of research at Galaxy Digital, expressed his frustration on X (formerly Twitter), stating, "This is the height of jurisdictional overreach. The SEC doesn’t even make a case here. They are just unwilling to let it go. It’s a bludgeon they must keep sharp, lest any legitimate actors deign to wield these (boringly above-board) instruments."

The SEC's involvement introduces a significant hurdle to the FTX bankruptcy estate's efforts to repay creditors, potentially delaying the process. If the SEC challenges the use of stablecoins in the repayment plan, it could lead to further legal battles and set a precedent for how digital assets are treated in bankruptcy proceedings.

As of now, the FTX bankruptcy estate's plan remains under scrutiny, and its final approval may hinge on how these regulatory concerns are addressed.

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