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A U.S. bankruptcy judge has denied calls for an independent probe into FTX’s collapse, stating that it would be redundant to other ongoing investigations. The U.S. Department of Justice had requested an independent examiner to investigate allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement, arguing that these were “too important to be left to an internal investigation.” However, FTX and the committee representing its junior creditors opposed this demand, stating that the proposed examination would merely duplicate work already being done by FTX, its creditors, and law enforcement agencies.
In a hearing held on Wednesday in Wilmington, Delaware, U.S. Bankruptcy Judge John Dorsey rejected the DOJ’s request for an independent examiner, noting that the proposed investigation would likely cost more than $100 million and undermine FTX’s goal of “returning value to creditors.” “There are already multiple investigations underway by incredibly competent and independent parties,” Dorsey said. “Every dollar spent on administrative expenses in these cases is one dollar less for the creditors.”
The judge expressed confidence in the investigation already being handled by FTX’s new CEO, John Ray, who has decades of experience in cleaning up the mess left by troubled companies. Ray is wholly independent of FTX’s past misconduct, Dorsey said. The judge also said that he intends to appoint a fee examiner to oversee FTX’s spending on professional fees in its bankruptcy.
FTX, once among the world’s top crypto exchanges, filed for bankruptcy in November, leaving an estimated 9 million customers and investors facing billions of dollars in losses. The company’s founder, Sam Bankman-Fried, has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his Alameda Research hedge fund. He has pleaded not guilty to fraud charges. Several former top executives, including Alameda Research CEO Caroline Ellison, have pleaded guilty to fraud.
FTX’s bankruptcy attorneys at Sullivan & Cromwell, some of whom are charging over $2,100 per hour, have incurred nearly $25 million in fees for work performed from Nov. 12 through Dec. 31, according to recent court filings. An attorney for FTX said the company would propose someone for the role of fee examiner after consulting with its creditors.
The U.S. Trustee, the Justice Department’s bankruptcy watchdog, had argued that an independent examiner should be appointed to investigate misconduct allegations, stating that these were “too important to be left to an internal investigation.” However, FTX and its creditors argued that this proposed examination would duplicate work already being done by FTX, its creditors, and law enforcement agencies and drain millions of dollars from FTX’s limited funds.
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FTX’s collapse has shaken the cryptocurrency sector, leaving an estimated 9 million customers and investors facing billions of dollars in losses. The company filed for bankruptcy in November, and its founder Sam Bankman-Fried has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his Alameda Research hedge fund. Several former top executives, including Alameda Research CEO Caroline Ellison, have pleaded guilty to fraud. Bankman-Fried has pleaded not guilty to fraud charges and is scheduled to face trial in October.
In conclusion, the U.S. bankruptcy judge’s decision to deny calls for an independent probe into FTX’s collapse is based on the reasoning that the proposed investigation would duplicate work already being done by FTX, its creditors, and law enforcement agencies and drain millions of dollars from FTX’s limited funds. The judge expressed confidence in the investigation already being handled by FTX’s new CEO, John Ray, who has decades of experience in cleaning up the mess left by troubled companies.
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FTX bankruptcy judge rejects call for new investigation into crypto exchange’s collapse
