After entering bankruptcy protection, the issue of the bankruptcy liquidation team “self-enriching” has been a point of contention among creditors. The staggering legal fees have also prompted the court to rule that the issue of FTX must be investigated by an independent examiner.
(Background: FTX Compensation Announcement Angers! Will be calculated based on BTC 16,871 Mg, ETH 1258 Mg, SOL 16 Mg prices.)
FTX, a cryptocurrency exchange, entered bankruptcy protection procedures after its closure in November 2022. Subsequently, in February 2023, the United States Trustee’s Office, the bankruptcy regulatory body of the U.S. Department of Justice, requested the appointment of an “independent examiner” by the judge to investigate the allegations of fraud, improper conduct, and mismanagement by FTX. The reason is that the complex interest issues of FTX “cannot be left to internal investigations”.
The motion for the appointment of an “independent examiner” was originally initiated by the Texas Securities Commission and received support from regulatory agencies in California, Florida, Hawaii, Idaho, and Washington, D.C. They emphasized that the appointment of an independent examiner would be more favorable to creditors given the lack of transparency in FTX’s financial situation and assets. However, Judge John Dorsey initially rejected this request in early February 2023, stating:
Court ruling: The appointment of an independent examiner is required!
However, the continuously increasing legal fees in the FTX bankruptcy case began to attract the attention of the U.S. Trustee’s Office. The bankruptcy court judge had previously approved the motion of the trustee to hire an independent examiner to investigate the allegations of fraud, improper conduct, and mismanagement by FTX, as well as the associated costs of the bankruptcy liquidation process, and to determine if there are any employees or managers at FTX who are still engaged in improper conduct.
It is worth noting that according to the latest court documents quoted by crypto KOL @MrPurple_DJ, on January 19th, the Third Circuit Court of Appeals in Philadelphia issued a mandatory ruling. FTX must be investigated by an independent examiner, and Judge Luis Felipe Restrepo has doubts about the independence of FTX’s current CEO, John Ray. In addition, the current legal team, Sullivan & Cromwell, previously served as advisors before the FTX bankruptcy, which does not meet the standard of being “disinterested parties”.
Regarding the appointment of an “independent examiner”, FTX’s current CEO and head of the bankruptcy liquidation, John Ray, strongly opposed it and cited cases of working with examiners in the bankruptcy cases of Enron and Residential Capital that he led in the past. He claimed that the work of these examiners in these cases cost a staggering $90 million and $100 million respectively, but their actual utility was minimal. For example, the independent investigation report issued by the Enron examiner was “very superficial”.
Ironically, in late June of last year, independent auditor Katherine Stadler, appointed by the bankruptcy court, submitted a summary report on cost review, which indicated that in the first 7 months of the FTX bankruptcy case, lawyers, advisors, and other professionals had already charged an astonishing $200 million in fees.
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