- The trustee wants an objective entity to review FTX’s financial, business operations
- US bankruptcy judge John Dorsey rejected the request last year
A federal appeals court in Philadelphia ordered an independent examiner to inspect the bankruptcy case of FTX amid concerns about rampant fraud before the collapse of the multibillion-dollar cryptocurrency exchange, Associated Press reported.
Trustee claims lack of objectivity
A three-judge panel made the decision on an appeal the US bankruptcy trustee filed. The trustee serves as a government watchdog in the Chapter 11 reorganizations. The trustee’s attorneys insist that an objective entity review FTX’s financial affairs and business operations, including the accusations of unprecedented fraud leading to its downfall, rather than leave this to an internal investigation.
New inspection "too costly"
US bankruptcy judge John Dorsey rejected the trustee’s request last year. According to him, an examiner would be too expensive to hire and would copy investigations being carried out by FTX’s new Directors’ board and the creditors committee.
The judge expressed confidence in John Ray III, who Sam Bankman-Fried appointed as the company’s new CEO when FTX filed for bankruptcy.
Sam Bankman-Fried was convicted of all the charges against him in November 2023 and awaits sentencing in March. According to the prosecution in the case, Bankman-Fried embezzled billions of dollars from client accounts at FTX into Alameda Research, his cryptocurrency hedge fund.
Arguments in favor of a new examiner
The court of appeals reversed Dorsey’s judgment, claiming bankruptcy law requires a new examiner to be appointed. According to the speaker of the panel, very complicated cases such as this one result in “straightforward issues on appeal.”
The speaker also pointed out that an examiner must publicize their findings, while a committee of debtors or creditors carrying out an internal investigation is not required to do so. According to him, the examiner’s report and investigation will make sure the court can consider “greater public interest” when approving the bankruptcy plan. They will also provide much-needed clarity.
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