DOVER, Del. – The judge presiding over the bankruptcy of cryptocurrency exchange FTX has denied a request by the U.S. bankruptcy trustee to appoint an independent examiner in the case.
The trustee, who serves as a government watchdog in Chapter 11 reorganizations, argued that the company’s financial affairs and business operations, including allegations of unprecedented fraud leading to its collapse, should be reviewed by a disinterested person, not left to an internal investigation.
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But Judge John Dorsey rejected the request on Wednesday. He agreed with FTX and its official committee of unsecured creditors that an examiner’s work would be too costly and would duplicate investigations already under way by FTX’s new leadership, the creditors committee and several federal agencies.
“There is no question that if an examiner is appointed, the cost of the examination, given the scope suggested by the trustee at the hearing, would be in the tens of millions of dollars and would likely exceed 100 million dollars,” Dorsey said.
The judge noted that the goal of the bankruptcy is to return as much value as possible to FTX creditors and customers. “Every dollar spent in these cases on administrative expense is a dollar less to creditors,” he said.
Dorsey also indicated that he has confidence in John Ray III, who replaced FTX co-founder Sam Bankman-Fried as CEO on the same day the company sought bankruptcy protection in November.
“There is no question that Mr. Ray is completely independent of prior management and the companies he was appointed to lead,” Dorsey said, describing Ray as “highly qualified” and “a consummate professional.” The judge similarly expressed confidence in the independent directors appointed by Ray to oversee four silos of FTX business units during the bankruptcy.
Meanwhile, Bankman-Fried is scheduled to appear in a New York courtroom on Thursday for a review of his bail conditions. Prosecutors have expressed concerns about Bankman-Fried accessing the internet using a virtual private network. They acknowledge that VPNs can be used for benign purposes but note that they also can be used to disguise data transfers and the use of international cryptocurrency exchanges.
Bankman-Fried, 30, has pleaded not guilty to charges that he illegally diverted massive amounts of customer money from FTX to Alameda Research, his cryptocurrency hedge fund trading firm. He has been confined with electronic monitoring to his parents’ home in Palo Alto, California, after being released on a $250 million personal recognizance bond.
FTX co-founder and chief technology officer Gary Wang and Carolyn Ellison, the former CEO of Alameda Research, have pleaded guilty to charges including wire fraud, securities fraud and commodities fraud and are cooperating with federal prosecutors.