The US Securities and Exchange Commission (SEC) filed an application stating it could object to the FTX repayment plan if certain changes are not implemented. In its August 30 filing, the regulator reserved the right to object to any confirmation of the plan.
With the move, the SEC has become the latest party to complain about the plan, which most FTX creditors have approved. US Trustee Andrew Vara and a group of creditors led by Sunil Kavuri had previously objected to several provisions in the proposal.
SEC wants the removal of the discharge provision
According to the Commission, the discharge provision in the plan and proposed confirmation order should be removed. This provision granted complete immunity from liability to the estate administrators and even third-party advisors.
Notably, Vara and the retail creditors had made similar objections in their filings. Vara said the proposed plan’s broad exemptions exceed what the law allows and give these parties too much protection. Although the SEC did not specify its reasons for filing its reservation of rights, it mentioned that it had told the FTX bankruptcy administrator to delete that provision.
The SEC said:
“The SEC has requested that the Debtors delete the discharge provision from the Plan and confirmation order and has also asked the Debtors to make certain other changes to the Plan and confirmation order. The SEC reserves the right to object to confirmation of the Plan if these changes are not made.”
With the SEC joining the multiple oppositions to the discharge provision, the FTX liquidator would likely amend the provision. However, the potential objection by the SEC could further extend the waiting period for FTX creditors who have already waited almost two years to recover their funds.
SEC may challenge FTX’s crypto distribution
Meanwhile, the regulator also reserved rights on the cryptocurrencies that the FTX bankruptcy estate has not liquidated or planned to distribute to creditors. The SEC noted that FTX estate wants to distribute stablecoins to certain creditors but pointed out that it reserves the right to challenge such distributions involving crypto assets.
The filing noted:
“The Debtors have not identified the distribution agent, which may potentially distribute stablecoins to creditors under the Plan. The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the Plan and reserves its rights to challenge transactions involving crypto assets.”
While the SEC failed to comment on the legality of crypto transactions, the possibility of the regulator challenging the distribution using cryptocurrencies aligns with its stringent approach to the emerging industry. Further, its use of the term “crypto assets securities” in the filing was described as “nonsensical” by a crypto investor who noted that the SEC has failed to clarify what makes a cryptocurrency a security.
