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U.S. bankruptcy judge weighs demand for independent investigation into collapse of FTX

  • February 11, 2023

Former FTX chief executive Sam Bankman-Fried leaves Manhattan federal court, on Jan. 3.DAVID DEE DELGADO/Reuters

A U.S. bankruptcy judge is considering at a Monday court hearing in Delaware whether to greenlight a court-supervised investigation into the collapse of FTX, a course of action that the crypto exchange opposes as redundant and wasteful.

The U.S. Department of Justice’s bankruptcy watchdog has urged U.S. Bankruptcy Judge John Dorsey, who is overseeing FTX’s Chapter 11, to appoint an independent examiner to investigate allegations of “fraud, dishonesty, incompetence, misconduct, and mismanagement” that are “too important to be left to an internal investigation.”

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

FTX has said an examiner would merely duplicate work already being done by FTX, its creditors, and law enforcement agencies.

FTX attorney James Bromley told Dorsey that an investigation is not appropriate, and allowing new investigators to access its systems could jeopardize the cybersecurity of FTX’s ongoing investigation.

FTX’s new CEO, John Ray, said that FTX has already answered 156 requests for information from federal prosecutors in Manhattan, producing 70,000 documents, as well as 151 requests from the U.S. Commodity Futures Trading Commission and hundreds of requests from other U.S. regulators and prosecutors, members of Congress and foreign governments.

FTX has acknowledged that its past conduct raised questions about fraud and mismanagement, but has said another layer of review would only add cost and delay to the company’s effort to repay customers in bankruptcy.

Ray, who worked with court-appointed examiners while leading Enron Corp and Residential Capital through bankruptcy, told the court that examiners in those two cases cost $90 million and $100 million, respectively, but were not useful.

“They were very shallow –

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