The US Securities and Exchange Commission (SEC) has raised concerns about FTX’s bankruptcy repayment plan, signaling potential objections if certain modifications are not made. In an August 30 filing, the SEC expressed its intention to challenge the plan’s confirmation if its suggested changes are not implemented.
This development adds another layer of complexity to the ongoing bankruptcy proceedings, with the SEC joining other parties in questioning aspects of the plan that most FTX creditors have already approved. US Trustee Andrew Vara and a group of creditors led by Sunil Kavuri had previously opposed specific provisions in the proposal.
SEC demands the removal of the discharge provision
The SEC has specifically targeted the discharge provision within FTX’s repayment plan and proposed a confirmation order. This provision grants broad immunity from liability to the estate administrators and third-party advisors, which the SEC finds problematic. The Commission has called for removing this provision, aligning with earlier objections from Vara and retail creditors who argued that the exemptions offered in the plan go beyond what is legally permissible.
The SEC’s filing did not provide detailed reasons for its objections but clarified that it had informed the FTX bankruptcy administrator of its concerns. The Commission emphasized that if its requested changes are not made, it reserves the right to object to the plan’s confirmation formally.
Potential impact on FTX creditors
The SEC’s involvement in the dispute over the discharge provision could have significant implications for FTX creditors, who have been waiting for nearly two years to recover their funds. The possibility of the SEC filing an objection might result in further delays in the bankruptcy proceedings, extending the already lengthy waiting period for creditors.
Given the SEC’s influence and the growing number of objections, the FTX liquidator will likely be compelled to amend the discharge provision to avoid additional challenges. However, this amendment process may take time, further complicating the repayment timeline.
SEC’s concerns over crypto distribution
In addition to the discharge provision, the SEC has also expressed reservations about the distribution of cryptocurrencies that remain within the FTX bankruptcy estate. The Commission highlighted its concerns regarding distributing stablecoins to certain creditors, reserving the right to challenge any transactions involving crypto assets.
The SEC’s filing noted that the FTX estate had not identified the distribution agent responsible for handling these assets. While the SEC has not commented on the legality of the proposed crypto transactions under federal securities laws, it has clarified that it may contest any distributions involving cryptocurrencies.
The term “crypto-assets securities” in the filing has drawn criticism from the crypto community, with some investors describing it as unclear. Despite this, the SEC’s cautious approach to the emerging crypto industry is evident, and its potential challenge to FTX’s crypto distribution plans could further delay the repayment process for creditors. As the situation develops, the SEC’s actions will likely play a crucial role in shaping the outcome of FTX’s bankruptcy proceedings.