The SEC expresses reservations regarding FTX’s bankruptcy plan, citing legal concerns and indicating that it may challenge it if revisions are not forthcoming.
The U.S. Securities and Exchange Commission (SEC) has conveyed apprehensions regarding FTX’s proposed bankruptcy reorganization plan, which had previously garnered substantial support from creditors. The SEC has indicated that it may object to the plan’s confirmation unless specific revisions are made, which represents a substantial obstacle for the troubled cryptocurrency exchange.
The SEC submitted its objections to the court on August 30, with an emphasis on the discharge provision of the plan. The SEC has requested the removal of this provision and has recommended further modifications to the plan and the proposed confirmation order. The agency has explicitly stated that it will challenge the confirmation of the plan if these modifications are not implemented.
The SEC’s stance is consistent with the apprehensions expressed by Andrew R. Vara, the U.S. Trustee who is responsible for the FTX bankruptcy case. Vara contended that the plan offers the estate’s administrators and advisers an inordinate amount of legal protection, which exceeds the protections typically granted under existing laws. He observed that specialists’ duties and compensation are already subject to judicial scrutiny, rendering such immunity unnecessary.
The disposition of crypto assets within the FTX reorganization plan is also the subject of the SEC’s objections. The commission has reserved the right to challenge the liquidation or distribution of crypto assets to creditors, which leaves the question of whether these transactions comply with federal securities laws open. This cautious approach is in accordance with the SEC’s broader regulatory posture under Chair Gary Gensler, who has classified a significant number of crypto assets as securities.
The SEC has designated over 20 crypto tokens, including prominent ones like Solana and Polygon, as securities in significant litigation against companies like Coinbase and Binance, under Gensler’s management. In the context of legal and financial matters, this has resulted in heightened scrutiny of the treatment of crypto assets.
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