FTX Examiner Faces Legal Battle After Court Referral

Key Points:

• Independent investigator appointed to FTX collapse.
• Government joins bipartisan group calling for independent inquiry, despite $100M cost warning.
• Legal question remains on independent probe under bankruptcy code.

Delaware District Judge referred the appointment of an independent investigator into the collapse of crypto exchange FTX to the U.S.

Third Circuit Court of Appeals. This move follows the call by a bipartisan grouping of Senators to conduct an independent inquiry into the fall of Sam Bankman-Fried’s empire. It is worth noting that FTX’s new management has warned that the investigation could cost the estate around $100 million in legal costs.

District Judge Colm F. Connolly explained that the matter was out of his hands as the law compels him to refer the case upwards if the U.S. Trustee, a branch of the Department of Justice (DOJ) concerned with bankruptcy, asks for it, and if there’s no dispute over facts. According to Connolly’s ruling, “No one contests that the Trustee requested an examiner here or that the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5 million.” He added that all that remains is a legal question – whether the bankruptcy code compels an independent probe.

It is also worth pointing out that in March, John Dorsey, a judge from a bankruptcy court, declined to appoint an examiner into the case, citing that it could represent a costly delay to the wind-up of the network of around 100 companies.

FTX filed for bankruptcy in November, and Bankman-Fried, the former chief executive officer, is currently battling DOJ charges including wire fraud. Despite this, filings by his successor John J. Ray III have hinted at a potential reboot of the exchange’s activity.

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