- The SEC reserved the right to challenge creditor repayments made using U.S. dollar-pegged crypto assets.
- FTX’s current liquidation plan proposes creditor claims based on asset values at the time of bankruptcy.
- Galois Capital was fined $225,000 for storing client funds on non-qualified platforms, including FTX.
The SEC is taking a closer look at payments made to creditors of the collapsed FTX exchange. This comes as Adam Cochran voiced concerns about SEC oversight failures on social media, pointing out the irony of the agency suing funds for storing assets in FTX while missing major fraud. The SEC had previously engaged with FTX during investigations but failed to uncover the misconduct.
Adding to the scrutiny, the SEC warned it could challenge repayments made using stablecoins. In a recent filing with the U.S. Bankruptcy Court in Delaware, SEC lawyers reserved the right to question the legality of creditor repayments made with U.S. dollar-pegged crypto assets. The SEC clarified that while these transactions might not be illegal, it would keep an eye on and potentially dispute any repayments involving crypto.
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Moreover, FTX has been exploring different ways to compensate its creditors since its collapse in November 2022. The exchange’s current liquidation plan proposes paying claims based on asset values at the time of bankruptcy.
Payments will be made in cash or stablecoins, in line with creditors’ calls for in-kind payments. However, the SEC emphasized its right to review these transactions to ensure they follow federal securities laws.
Read also: Ripple CLO Slams SEC’s “Fabricated” Terminology in Crypto Regulation Cases
The SEC also took action against Galois Capital Management, an investment firm linked to the FTX fallout. Galois was fined $225,000 for failing to comply with custody regulations by storing client funds on non-qualified platforms, including FTX. The firm also misled investors about redemption notices, worsening the impact of FTX’s collapse.
Furthermore, the SEC revealed that Galois had half of its managed assets in FTX accounts when the exchange declared bankruptcy. The incident underscored broader systemic risks within the crypto industry, leading to renewed calls for stricter regulatory oversight. The SEC’s actions emphasize its commitment to enforcing compliance in the crypto sector.
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