FTX Faces External Examination

The court deemed it necessary despite FTX’s objections, highlighting concerns over fraud allegations.

A federal appeals court has mandated that FTX’s bankruptcy case be examined by an independent examiner following a three-judge bench decision.

In the FTX Case, a Federal Court Mandates the Appointment of an Examiner

On Tuesday, the Associated Press reported that a Philadelphia court of appeals reversed a previous decision that denied the request for an independent examiner by a US bankruptcy trustee.

In February of last year, US bankruptcy judge John Dorsey denied the trustee’s request.

Judge Dorsey concurred with FTX’s contention that the participation of an examiner would merely replicate the activities of the committee of unsecured creditors, federal agencies, and new CEO John Ray III.

Additionally, FTX contended that the expense of employing an independent examiner was prohibitive.

However, the appeals court concurred with the bankruptcy trustee’s stance that the collapse of FTX, which was precipitated by accusations of extensive fraud, necessitates an external examination as opposed to depending on an internal inquiry in its decision rendered last Friday.

In his opinion for the appeals court panel, Judge Luis Felipe Restrepo stated that the trustee’s case presented “obvious concerns” and that the bankruptcy code mandates the appointment of an impartial examiner.

Judge Restrepo stated that an examiner would disclose all findings. Creditors or debtor committees are not obligated in this manner.

FTX initiated the bankruptcy process in November 2022, and Sam Bankman-Fried, the organization’s former CEO and founder, is awaiting sentencing after his conviction on all counts, including fraud. The scheduled date for the sentencing is March 2024.

US prosecutors indicated earlier this month that they would not pursue a second trial against Bankman-Fried.