The bankruptcy team did not meet the "disinterested party" standard, and the judge ruled that FTX needs to appoint an independent investigator

The establishment of an independent FTX investigator was previously rejected.

More than a year ago, multiple U.S. state regulators launched a joint motion asking the federal bankruptcy judge to appoint a third-party FTX financial examiner.

The motion was initiated by the Texas Securities Regulatory Commission and supported by more than ten regulatory agencies including California, Florida, Hawaii, Idaho, and Washington, D.C., emphasizing the lack of transparency in the financial status and assets of FTX debtors, and setting up an independent reviewer is in line with the maximum interests of creditors. Benefit.

As previously reported , Judge John Dorsey dismissed the request in February 2023:

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I fully agree that the appointment of an independent examiner is not in the best interests of creditors and in a case like this, every dollar more in administrative fees is a dollar less for the creditors.

He believes that FTX’s current CEO, John Ray, is completely independent from FTX’s previous management and is very qualified to resolve bankruptcy cases and return assets to creditors and users. He also believes that repeated reviews by the restructuring team and independent investigators will bring excessive costs. the cost of.

He said: There is no doubt that the appointment of an independent reviewer is not in the best interests of creditors. In these cases, every extra dollar spent on administration costs the creditor a dollar less.

However, the Third Circuit Court of Appeals in Philadelphia ruled on January 19 that FTX must be investigated by an independent reviewer.

Bankruptcy team does not meet the "disinterested party" standard

Mr. Purple (@MrPurple_DJ), a crypto community that continues to pay attention to bankruptcy and reorganization, cited legal documents and pointed out that Judge Luis Felipe Restrepo believed that the independence of the ongoing investigation by FTX’s current CEO John Ray was questionable. The legal team Sullivan & Cromwell had been involved in FTX’s bankruptcy. Formerly a consultant.

Restrepo said:

If the debtor's debt exceeds $5 million, an independent examiner needs to be appointed under bankruptcy law (this is definitely the case with FTX), and additional independent investigations of FTX will also be helpful to the crypto industry as a whole. John Ray's "independence" does not overturn the fact that the debtor's lawyer S&C was FTX's pre-bankruptcy consultant and did not meet the standard of "disinterested person".

5/7 UCC also got this wrong and Mr. Ray's "independence" doesn't override the fact that Debtor counsel, S&C, were pre-petition advisors to FTX and do not meet the standard of a "disinterested person." pic.twitter .com/vhVxSXLBWt

— Mr. Purple 🛡️ (@MrPurple_DJ) January 19, 2024