Feb 16, 2023

Judge Dorsey Denies Motion for Independent Examiner in FTX Bankruptcy Case

John Dorsey, a judge with the United States Bankruptcy Court for the District of Delaware, recently denied a motion to appoint an independent examiner for FTX. In a Feb. 15 hearing, Dorsey argued that appointing an examiner would be an “unnecessary burden” on FTX’s debtors and creditors, citing the additional expense.

The judge noted that the cost of the examination, given the scope suggested by the Trustee at the hearing, would likely exceed one hundred million dollars. He concluded that the appointment of an examiner would not be in the best interest of FTX’s creditors.

“Every dollar spent in these cases on administrative expenses is a dollar less to the creditors,” said Dorsey.

He then addressed CEO John Ray’s experience in taking over other companies in dire financial condition, and his decision to appoint four directors to oversee the silos compromising FTX following the removal of previous leadership — some of whom, including former CEO Sam Bankman-Fried, have been indicted in federal court. Dorsey ruled that Ray was “completely independent of prior management and the companies he was appointed to lead.”

The motion to appoint an independent examiner was filed by U.S. Trustee Andrew Vara on Dec. 1. Vara argued that an examiner was “unquestionably in the interests of the Debtors’ creditors,” and that independent investigations could explore whether software was allegedly used to conceal the misuse of FTX user funds, as well as the absence of proper recordkeeping at the firm.

FTX filed for Chapter 11 in November 2022, and debtors in the case recently filed that they had issued subpoenas to FTX insiders, including Bankman-Fried, ordering the former executives to turn over certain documents and information.

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