FTX is trying to get back on its feet after the collapse of Sam Bankman-Fried. The road ahead is bumpy, but there’s a light at the end of the tunnel. Or at least that’s what they’re saying. With a confirmation hearing set for October 7, 2024, the plan is to return a hefty chunk of change to creditors. But hold your horses—there are some serious questions about the use of stablecoins and some eyebrow-raising payouts to shareholders. Let’s break it down.

The Basics: What’s Happening with FTX?

So here’s the deal: FTX filed for Chapter 11 bankruptcy and now wants to reorganize itself. The big court date coming up will determine if their plan gets approved or not. If it does, over 98% of FTX customers might see some money back—though I wouldn’t hold my breath just yet.

The proposed plan has gotten a lot of traction, with over 94% of creditors voting in favor. But two classes of creditors didn’t even bother to vote and are assumed to accept the plan, which makes things look even better for FTX.

Why Are There Stablecoins Involved?

Now here’s where things get interesting—and a bit murky. Part of the payout involves stablecoins, and that’s raising some red flags. The U.S. Securities and Exchange Commission (SEC) isn’t too happy about it and has voiced concerns that could potentially delay payouts by ages.

FTX's lawyers are pushing hard for cash payments instead, claiming it's necessary to avoid further complications down the line.

SEC's Concerns: Are We Outta Here Yet?

The SEC has made it clear they’re not fans of stablecoins being used for these payouts. They’ve even joined forces with another regulatory body—the U.S Trustee overseeing the bankruptcy—to object to certain parts of FTX's plan.

This could be an issue since one part of their objection is basically “you guys haven’t told us who’s gonna distribute these stablecoins.” And let me tell you, if there's one thing we learned from this whole saga, it's that distribution processes need to be crystal clear.

Shareholder Payouts: What Gives?

As if things weren’t complicated enough, there’s also $230 million set aside from U.S government forfeiture funds specifically for preferred shareholders! This little tidbit was buried deep in an agreement finalized on August 28 but only revealed recently.

This move has left many creditors scratching their heads—aren't shareholders supposed to be last in line during bankruptcy? Traditionally yes! But apparently not in this case according to FTX's lawyers who claim paying out these shareholders will save everyone a lot more headache down the road.

The Legal Framework: Absolute Priority Rule

Let me hit you with some legal jargon—the "absolute priority rule." This principle dictates how funds should be allocated during bankruptcy proceedings. Basically, if you're a class of impaired creditor that's not accepting the proposed plan—you better believe you're getting paid first before any shareholder sees a dime!

And guess what? There seems to be an exception called "new value exception" which allows prepetition shareholders retaining interests if they contribute new value towards reorganization—but that’s another can of worms we’ll leave closed for now!

Looking Ahead: What Does It All Mean?

So where does this leave us? Well, as FTX tries to navigate through these waters laden with icebergs—the outcome could have huge implications on future crypto exchanges and their interactions with traditional financial systems.

The SEC's stance on stablecoin payouts may very well shape how other bankrupt crypto entities structure their repayment plans going forward—and let me tell you folks—it ain't looking good right now!

If you thought regulatory scrutiny was high before? Just wait until after this case wraps up…