FTX Bankruptcy Judge Denies US Trustee’s Motion To Appoint Examiner

• FTX bankruptcy judge denies US trustee’s motion to appoint independent examiner
• U.S. Trustee argued that an examiner was necessary to scrutinize the use of software to conceal FTX’s alleged misuse of customer funds
• Judge John Dorsey ruled that appointing an examiner would be an “unnecessary burden” on FTX’s debtors and creditors

FTX Bankruptcy Case

The United States Bankruptcy Court for the District of Delaware denied a motion appointing an independent examiner for FTX in a February 15th hearing. The U.S. Trustee had argued that such a position was necessary to investigate possible mismanagement of customer funds and other financial misconduct.

Judge John Dorsey’s Ruling

Judge John Dorsey ruled that appointing an examiner would be too costly, with potential costs exceeding one hundred million dollars, and therefore not in the best interest of creditors. He also cited CEO John Ray’s experience taking over other companies and his decision to appoint four directors to oversee the silos compromising FTX following the removal of previous leadership as evidence that Ray is “completely independent of prior management and the companies he was appointed to lead”.

U.S Trustee Andrew Vara’s Motion

In December 2020, U.S Trustee Andrew Vara filed a motion arguing that appointing an examiner was “unquestionably in the interests of debtor’s creditors” as they could investigate if software had been used inappropriately by prior leadership or if there were any issues with recordkeeping at FTX.

Ongoing Bankruptcy Proceedings

Bankruptcy proceedings for FTX have been ongoing since November 2022 when they filed for Chapter 11 protection from creditors. Debtors have issued sub-debt agreements with secured lenders indicating their intention to reorganize under Chapter 11, but it remains unclear how long this process will take or what outcome there will ultimately be from these proceedings or from Judge Dorsey’s ruling on the appointment of an independent examiner.

Conclusion

Ultimately Judge Dorsey ruled against appointing an independent examiner due to cost concerns, despite arguments by U.S Trustee Andrew Vara that it would be beneficial for creditors in uncovering possible financial misconduct at FTX during its bankruptcy proceedings