Court probes FTX Bankruptcy Team's neutrality concerns.

Jafar224

Since its closure in November 2022, the cryptocurrency exchange FTX entered bankruptcy protection. Subsequently, in February 2023, the U.S. Department of Justice's bankruptcy oversight agency, the U.S. Trustee's Office, requested the appointment of an "independent examiner" to investigate allegations of fraud, misconduct, and mismanagement at FTX. This was due to the complex issues surrounding FTX's interests that "cannot be left to internal investigations."

The proposal for an "independent examiner" was initially initiated by the Texas Securities Commission and gained support from multiple regulatory bodies, including those in California, Florida, Hawaii, Idaho, and Washington, D.C. They emphasized that, given the lack of transparency in the financial condition and assets of FTX debtors, appointing an independent examiner would be more favorable to creditors. However, in early February 2023, Judge John Dorsey initially rejected this request, stating, "In cases like this, I firmly believe that appointing an independent examiner is not in the best interest of creditors. We must consider that every additional dollar of administrative expense actually means creditors will lose an equal amount."

However, the escalating legal fees in the FTX bankruptcy case began to draw the attention of the U.S. Department of Justice Trustee's Office. The bankruptcy court's judge had previously approved the trustee's motion, allowing the hiring of an independent examiner to investigate allegations of fraud, misconduct, and mismanagement at FTX, as well as costs related to bankruptcy liquidation procedures. The examiner would also determine if any employees or executives at FTX were still engaging in improper conduct.

It is noteworthy that, according to the latest court documents quoted by cryptocurrency commentator @MrPurple_DJ, on January 19, the Philadelphia Third Circuit Court of Appeals made a mandatory ruling. FTX must be investigated by an independent examiner, and Judge Luis Felipe Restrepo expressed doubts about the independence of FTX's current CEO, John Ray. Additionally, the current legal team, Sullivan & Cromwell, had previously served as advisors before FTX's bankruptcy, making them ineligible as "disinterested parties."

"The debtor's debt exceeds $5 million, and according to bankruptcy rules, the appointment of an independent examiner is required. FTX's situation undoubtedly meets this standard, and an independent investigation of FTX would also be beneficial to the overall cryptocurrency industry."

Regarding the issue of the "independent examiner," FTX's current CEO and head of bankruptcy liquidation, John Ray, strongly opposed it. He cited cases where he collaborated with examiners in bankruptcy cases of Anlon and Residential Capital, stating that the examiner's work in these cases cost a staggering $90 million and $100 million, respectively, with minimal utility. For instance, the independent investigation report produced by the Anlon examiner was "very superficial."

Ironically, in late June of the previous year, the court-appointed independent auditor Katherine Stadler submitted a cost review summary report, revealing that in the first seven months of the FTX bankruptcy case, lawyers, advisors, and other professionals had already billed up to $200 million.

Isha000

This is something that needs to be reviewed.

Niti998

It looks like there is a need to investigate as well.

Samiksha

Why did it close down?