Feb 16, 2023
Judge Dorsey Denies Motion to Appoint Examiner in FTX Bankruptcy Case
The United States Bankruptcy Court for the District of Delaware recently denied a motion to appoint an independent examiner for the crypto exchange FTX. Judge John Dorsey ruled that the appointment of an examiner would be an “unnecessary burden” on FTX’s debtors and creditors, citing the additional expense.
The motion to appoint an examiner was filed by US Trustee Andrew Vara on December 1, 2021. Vara argued that the appointment of an examiner was “unquestionably in the interests of the Debtors’ creditors” and that an independent investigation 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.
Judge Dorsey cited CEO John Ray’s experience 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. Judge Dorsey ruled that Ray was “completely independent of prior management and the companies he was appointed to lead”.
“There’s no question that if an examiner is appointed here, the cost of the examination given the scope suggested by the Trustee at the hearing, would be in the tens of millions of dollars, and would likely exceed one hundred million dollars,” said Dorsey. “Given the facts and circumstances of this highly unique case, I have no doubt that the appointment of an examiner would not be in the best interest of the creditors.”
The judge added:
“Every dollar spent in these cases on administrative expenses is a dollar less to the creditors.”
FTX filed for Chapter 11 bankruptcy in November 2022, and the bankruptcy proceedings have been ongoing since then. 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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