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FTX Bankruptcy: Texas, California, and New Jersey Join Call for Independent Examiner

  • February 25, 2023

A growing chorus of regulators wants an independent examiner appointed to review the financial statements, or lack thereof, in the FTX bankruptcy proceedings.

“Texas, among several other state and federal regulators, is currently investigating the Debtors and their related entities for violations in connection with their transaction of business in Texas and with Texas account holders,” wrote attorney Roma Desai on behalf of Texas Attorney General Ken Paxton.

The statement from the Texas attorney’s office follows similar motions from Wisconsin and Vermont regulators. The new court filing on Wednesday included letters of support from banking and securities officials in a handful of other states: Alaska; Arkansas; California; Florida; Hawaii; Idaho; Illinois; Kentucky; Maine, Maryland, New Hampshire, New Jersey, North Carolina, Oklahoma, Tennessee, and D.C..

If an examiner is appointed in the FTX case, it won’t be without some precedent.

Earlier this week the independent examiner who dug through bankrupt crypto lender Celsius released their 689-page report, concluding that problems at the company “dated back to at least 2020.”

The downfall of FTX

FTX and its related entities, including trading desk Alameda Research, filed for bankruptcy on November 11. Days later, newly appointed FTX CEO John Ray III, who’s overseeing the company’s restructuring, wrote in his first day declaration that the lack of corporate governance at the insolvent crypto exchange trumped anything he’d ever seen. He called the former leadership team, led by FTX founder Sam Bankman-Fried, “inexperienced, unsophisticated and potentially compromised.”

Although FTX’s restructuring team has maintained that it can untangle the mess it’s been left with, the U.S. Trustees appointed to oversee its bankruptcy proceedings aren’t convinced.

The U.S. Trustee, appointed by the Department of Justice to oversee FTX’s bankruptcy case, filed a motion to have an examiner appointed to “investigate the substantial and serious allegations of

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FTX CEO testifies on ‘pure hell’ post-bankruptcy days at exchange

  • February 24, 2023

John Ray, who took over as CEO of crypto exchange FTX, has described some of the chaotic experiences at the firm following the company declaring bankruptcy.

In testimony for FTX’s case in the United States Bankruptcy Court for the District of Delaware on Feb. 6, Ray said he and other professionals had “carefully” been conducting an investigation into FTX’s activities, due to the company having no physical office. The FTX CEO seemed to be pushing back against a motion to assign an independent examiner to the bankruptcy case, claiming that “inadvertent errors” could result in “hundreds of millions of dollars of value” being destroyed.

According to Ray, when he took control of FTX in November 2022, there was “not a single list of anything” related to bank accounts, income, insurance or personnel, causing a “massive scramble for information.” The FTX CEO said the same day he helped file a Chapter 11 bankruptcy petition, and there were multiple attempts to steal crypto, resulting in security experts and liquidators moving quickly to secure funds.

“Your normal first-day petition is chaotic as sometimes can be — this was something that I have never experienced,” said Ray. “Those hacks went on virtually all night long […] It was really 48 hours of what I can only describe as pure hell.”

The FTX CEO claimed he had had no connection with former executives at the exchange, including Alameda Research CEO Caroline Ellison, FTX co-founder Gary Wang and former CEO Sam Bankman-Fried or his parents prior to taking control of the company. According to Ray, anyone “that was in a control position” under Bankman-Fried no longer had any authority to direct FTX company actions.

Ray’s testimony came amid a motion from the Office of the U.S. Trustee arguing the court should appoint an independent examiner who

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FTX points to cost, cyber-risk in opposing independent bankruptcy investigation

  • February 15, 2023

By Dietrich Knauth

(Reuters) -FTX’s lawyers on Monday strongly urged a U.S. bankruptcy judge in Delaware not to greenlight a court-supervised investigation into its collapse, saying it would waste time and money and could pose a security risk.

FTX attorney James Bromley at Monday’s hearing told U.S. Bankruptcy Judge John Dorsey, who is overseeing the crypto exchange’s Chapter 11 case, that the proposed review the U.S. Department of Justice’s bankruptcy watchdog is seeking is so vague that it is essentially asking for an examiner to look at “everything, everywhere, all at once.”

The U.S. Trustee has asked Dorsey, to appoint an independent examiner to investigate allegations of fraud, misconduct, and mismanagement that are “too important to be left to an internal investigation.”

Juliet Sarkessian, an attorney for the U.S. Trustee, argued such an investigation is mandatory under federal law in large bankruptcy cases where DOJ or a creditor requests one.

Dorsey, who said he believed an examiner was not required, but should be appointed if “appropriate,” did not rule on Monday. He asked FTX, its creditors and the U.S. Trustee to try to reach an agreement on the scope of a potential examiner review.

FTX said an examiner would merely duplicate work already being done by FTX, its creditors, and law enforcement agencies, adding cost and delay to its effort to repay customers in bankruptcy.

FTX’s new CEO, John Ray, said on Monday that FTX has already answered 156 requests for information from federal prosecutors in Manhattan, producing 70,000 documents, as well as hundreds of requests from other U.S. regulators and prosecutors, members of Congress and foreign governments.

Ray, who worked with court-appointed examiners while leading Enron Corp and Residential Capital through bankruptcy, told the court that examiners in those cases cost $90 million and $100 million, respectively, but

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November 2023
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