FTX founder Samuel Bankman-Fried leaves Manhattan federal court, in New York, on Feb. 9.John Minchillo/The Associated Press
A U.S. bankruptcy judge on Wednesday denied calls for a new, independent probe into FTX’s collapse, saying that it would be redundant to other investigations being carried out by the crypto exchange’s new management and law enforcement.
U.S. Bankruptcy Judge John Dorsey rejected the U.S. Department of Justice’s request for an independent examiner at a hearing on Wednesday in Wilmington, Del., noting the proposed investigation would likely cost more than US$100-million and undermine FTX’s goal of “returning value to creditors.”
“There are already multiple investigations under way by incredibly competent and independent parties,” Justice Dorsey said. “Every dollar spent on administrative expenses in these cases is one dollar less for the creditors.”
The U.S. Trustee, the Justice Department’s bankruptcy watchdog, had argued that an independent examiner should be appointed to investigate allegations of “fraud, dishonesty, incompetence, misconduct and mismanagement” that were “too important to be left to an internal investigation.”
FTX and the committee representing its junior creditors opposed that demand, saying that the proposed examiner would merely duplicate work already being done by FTX, its creditors and law enforcement agencies.
The proposed examination would also drain millions of dollars from FTX’s limited funds, the company argued.
Justice Dorsey expressed confidence at Wednesday’s hearing in the investigation already being handled by FTX’s new chief executive officer, John Ray. Mr. Ray is a “consummate professional” with decades of experience cleaning up the mess left by troubled companies, and he is wholly independent of FTX’s past misconduct, Justice Dorsey said.
Justice Dorsey also said Wednesday that he intends to appoint a fee examiner to oversee FTX’s spending on professional fees in its bankruptcy.
FTX’s bankruptcy lawyers at Sullivan & Cromwell, some of whom are charging more than US$2,100 an hour, have incurred nearly US$25-million in fees for work performed from Nov. 12 through Dec. 31, according to recent court filings. A lawyer for FTX said the company will propose someone for the role of fee examiner after consulting with its creditors.
FTX, once among the world’s top crypto exchanges, shook the sector in November by filing for bankruptcy, leaving an estimated nine million customers and investors facing billions of dollars in losses.
FTX’s founder, Sam Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his Alameda Research hedge fund, has pleaded not guilty to fraud charges.
He is scheduled to face trial in October. Several former top executives, including Alameda Research CEO Caroline Ellison, have pleaded guilty to fraud.