- The SEC has asserted its authority in FTX’s bankruptcy proceedings, questioning the classification of cryptocurrencies as securities
- The agency has reserved the right to challenge FTX’s Chapter 11 Plan due to potential legal issues
- The SEC has emphasized that FTX’s portfolio includes crypto asset securities, despite its defeat to Ripple
The US Securities and Exchange Commission (SEC) has asserted its authority in the ongoing bankruptcy proceedings of FTX, raising concerns about the classification of cryptocurrencies as securities. In its recent filing, the SEC has reserved the right to challenge the confirmation of FTX’s Joint Chapter 11 Plan, emphasizing potential legal issues surrounding the distribution of crypto assets to creditors. The agency alleges that “The Debtors’ portfolio includes crypto asset securities,” showing that its defeat to Ripple last year has not dampened its spirits in this matter.
FTX Payouts Include “Crypto Asset Securities”
The SEC has consistently argued that many cryptocurrencies should be classified as securities under federal law, litigating dozens of cases on this matter. This classification subjects them to stringent regulatory oversight, including how they can be distributed in bankruptcy proceedings.
In the case of FTX, the SEC has expressed particular concern over the potential distribution of stablecoins to creditors, a move that could have significant implications under securities law:
…the Debtors have moved forward with a plan to liquidate, by pursuing sales of substantially all of their assets and filing a Chapter 11 Plan which seeks to liquidate and wind down the Debtors’ estates. The Debtors’ portfolio includes crypto asset securities which the Debtors may seek to monetize and/or distribute pursuant to the Plan.
The agency’s reservation of rights in the FTX case underscores its continued belief that cryptocurrencies should not be treated differently from traditional securities, despite its high-profile defeat to Ripple last year. The SEC has noted that FTX’s Chapter 11 Plan includes the possibility of distributing crypto assets without sufficient clarity on their legal status or the identity of the distribution agent.
This lack of transparency, the SEC argues, could lead to violations of securities regulations, further complicating the bankruptcy process.
SEC’s Opinion Could Have Sway
The SEC’s power in this matter is substantial. If the agency determines that the transactions outlined in FTX’s plan violate federal securities laws, it could block the confirmation of the plan or require significant revisions. This would not only impact the resolution of FTX’s bankruptcy but also set a precedent for how cryptocurrencies are treated in similar cases going forward.
The SEC’s stance on cryptocurrencies as securities has been a point of contention within the industry, and its involvement in the FTX case could further solidify its regulatory authority. As FTX’s bankruptcy proceedings continue, the SEC’s actions will be closely watched, with potential implications for the broader cryptocurrency market.
