A federal judge moved to limit the cost and length of a new outside investigation of FTX Trading, the fraud-tainted crypto firm, saying its insolvency case should not be disrupted by another multimillion-dollar probe.
US Bankruptcy Judge John Dorsey sided with lawyers for FTX and its creditors, who argued that the new investigation ordered by an appellate court should be short and limited in scope. Earlier this month, a federal appeals court in Philadelphia ordered the appointment of an examiner for the Chapter 11 case, but left the details of any investigation up to Dorsey.
The Office of the US Trustee, the federal watchdog that monitors corporate bankruptcies, had argued that the cost, length and scope of the new investigation should be left open until after the appointment of an examiner. Dorsey said that was a recipe for runaway costs that won’t turn up anything new.
“Left to an open process, that could involve tens of millions of dollars,” Dorsey said during a court hearing in Wilmington, Delaware. In the coming weeks, attorneys for the company, its creditors and the US Trustee should work together on a formal proposal to appoint an examiner, Dorsey said.
FTX collapsed in 2022 amid allegations that it misused digital assets customers put on its crypto trading platform. Eventually, company founder Sam Bankman-Fried stepped down and was later convicted of orchestrating a massive fraud.
Since restructuring advisers took over FTX in 2022 and placed the firm into bankruptcy, the company and its creditors have investigated its downfall while pursuing billions of dollars in cash and digital assets. In the next few months, the company will ask creditors to vote on a plan to distribute the money it has collected.
Dorsey said the examiner should review the various investigations into FTX done by the company’s restructuring professionals, as well as any outside probes by regulators and prosecutors. He also said the examiner should review any potential conflicts of interest involving FTX lawyers. The entire process should take no more than 45 days and conclude with a report by the examiner summarizing the probes, he added.
The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.
