DOJ Calls For An Independent Investigation Into FTX

An independent probe of FTX’s collapse has been demanded by the U.S. Justice Department bankruptcy watchdog (DOJ), which compared the cryptocurrency exchange’s sudden downfall to that of Lehman Brothers.

Because of the wider ramifications, the exchange’s failure has on the cryptocurrency industry, U.S. Trustee Andrew Vara, a representative of the Justice Department unit in charge of overseeing bankruptcy courts, requested that the judge overseeing FTX’s chapter 11 case appoint an impartial examiner to provide a transparent account of FTX’s failure.

The result is what is likely the fastest big corporate failure in American history. An examiner could and should investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement by the Debtors, the circumstances surrounding the Debtors’ collapse (FTX)

Andrew R. Vara, the U.S. Trustee, wrote in his motion to Delaware’s U.S. bankruptcy court

Mr. Vara added that an examiner should check to see if there are any legitimate legal claims to compensate FTX consumers for losses. According to him, Lehman Brothers and New Century Financial’s bankruptcy examiner reports “stand as examples of the bankruptcy system serving the public interest in transparency and accountability”.

Like the bankruptcy cases of Lehman, Washington Mutual Bank, and New Century Financial before them, these cases are exactly the kind of cases that require the appointment of an independent fiduciary to investigate and to report on the Debtors’ extraordinary collapse.

Andrew R. Vara wrote.

However, Mr. Vara stated that the questions at stake are simply too large and too important to be left to an internal investigation. He praised the work done thus far by FTX’s new CEO, John J. Ray III, and bankruptcy advisers to sort out the company’s affairs.

An examiner may also allow for a faster and more cost-effective resolution of these cases by allowing Mr. Ray to focus on his primary duty of stabilizing the debtors’ businesses while allowing the examiner to investigate the Debtors’ collapse and prior management.

Andrew R. Vara added

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