Cryptocurrency exchange FTX has entered bankruptcy protection since its collapse in November 2022. Since then, in February 2023, the U.S. Department of Justice's bankruptcy regulator, the U.S. Trustee's Office, asked a judge to appoint an "independent examiner" to investigate FTX fraud. , allegations of misconduct and mismanagement, as FTX’s complex interests “cannot be left to internal investigation.”
The "independent reviewer" motion was initially initiated by the Texas Securities Regulatory Commission and has received support from multiple regulatory agencies including California, Florida, Hawaii, Idaho and Washington, DC. They emphasized that given the lack of transparency regarding the financial status and assets of FTX debtors, it would be more beneficial for creditors to have an independent examiner. However, Judge John Dorsey initially dismissed the request in February 2023, saying at the time:
In such cases, I am convinced that the appointment of an independent examiner is not in the best interests of the creditors. We must consider that every additional dollar of administrative overhead effectively means that creditors will lose an equal amount.
The court changed its ruling: an independent reviewer needs to be appointed!
However, the rising legal costs in the FTX bankruptcy case have begun to attract the attention of the Office of the Trustee of the U.S. Department of Justice. A bankruptcy court judge has previously approved the trustee’s motion to hire an independent examiner to investigate FTX’s fraud, misconduct and mismanagement. charges, fees and costs associated with the bankruptcy proceedings, and the ability to determine whether any employees or officers of FTX who engaged in misconduct are still employed at the company.
It is worth noting that on January 19, the Third Circuit Court of Appeals in Philadelphia issued a mandatory ruling, according to the latest court documents cited by crypto KOL @MrPurple_DJ. FTX must be investigated by an independent reviewer, and Judge Luis Felipe Restrepo cast doubt on the independence of current FTX CEO John Ray. In addition, the current legal team, Sullivan & Cromwell, served as a consultant before FTX went bankrupt and therefore does not meet the "disinterested party" standard.
The debtor's debt exceeds $5 million, which requires the appointment of an independent examiner under bankruptcy law. FTX's situation undoubtedly meets this criterion, and an independent investigation of FTX will also be helpful to the crypto industry as a whole.
In response to the issue of "independent investigators", John Ray, the current CEO of FTX and head of bankruptcy liquidation, has strongly objected, citing his previous cases of cooperation with examiners in the bankruptcy cases of Anlong and Residential Capital, saying that the review of these cases The staff spent huge sums of US$90 million and US$100 million respectively, but in reality they had little effect. For example, the independent investigation report issued by the Anlong examiner was "very shallow."
Ironically, in late June last year, Katherine Stadler, the independent auditor appointed by the bankruptcy court, submitted a summary report of the fee review, which showed that in the first seven months of the FTX bankruptcy case, attorneys, consultants and other professionals had charged as much as $200 million in fees.
