An investigation into FTX’s bankruptcy by an examiner could cost the firm up to $100 million without benefiting creditors or equity holders, according to lawyers representing the bankrupt crypto exchange.
The arguments are part of a Jan. 25 objection to a motion filed in December by the US trustee requiring the judge to appoint an independent examiner to ensure the investigation was transparent and its findings made public.
It will be interesting.
4 senators have sent a letter requesting an independent examiner. Will they do more?
Several states have entered the FTX case. Will they give their support to an examiner?
The SEC has requested an independent examiner for Enron. Will they pronounce themselves in this case?
This will be fascinating.
4 Senators submitted a letter asking for an Independent Examiner. Will they do more?
Several States have entered the FTX case. Will they lend support for an Examiner?
The SEC asked for the Independent Examiner in Enron. Will they say anything here? https://t.co/KiSZKYonCD
— MetaLawMan (@MetaLawMan) January 26, 2023
FTX’s attorneys argued that creditors would not benefit from an examiner investigation that overlaps investigations conducted by FTX Chief Executive Officer John J. Ray III, a creditors’ committee, law enforcement and the Congress, adding:
“The appointment of an examiner, with a mandate to be determined, is expected to cost these properties tens of millions of dollars. In fact, if history is any indication, the cost could approach or exceed $100 million.”
The creditors’ committee, also known as The Official Committee of Unsecured Creditors, filed its objection to the appointment of an independent examiner on Jan. 25, also citing prohibitive costs and already ongoing multi-party investigations.
In the original motion, the US Trustee highlighted that if the court was concerned about overlapping work, it could allow the examiner access to existing work, adding:
“An examiner can also enable faster and more cost-effective resolution of these cases, allowing Mr. Ray to concentrate on his primary task of stabilizing the Debtors’ assets, while the examiner can conduct the investigation.”
Yesterday, the joint interim liquidators of the Bahamas and FTX US also objected to the appointment, citing a section of the bankruptcy code that allows a judge to appoint an examiner “as appropriate,” arguing that the unnecessary costs and delays that would accompany the appointment of an examiner make it “inappropriate”.
Related: BlockFi financial data leaks online, shows $1.2 billion FTX exposure
The appointment of an independent examiner was a key issue during FTX’s bankruptcy process.
On December 9, a group of four US Senators, including Elizabeth Warren, filed an open letter to Judge John Dorsey of the US Bankruptcy Court for the District of Delaware, alleging that FTX counsel Sullivan & Cromwell had a conflict of interest in the case, casting doubt on the firm’s ability to deliver unbiased results.
However, on January 20, the judge ruled that there were no potential conflicts of interest that would prevent the law firm from continuing to act as an advisor to FTX.
The judge will decide whether to accept the appointment of an independent examiner at a February 6 hearing.
Independent examiners are often appointed by bankruptcy courts to investigate the details of complex cases brought before them, and have been appointed in other high-profile bankruptcy cases such as Lehman Brothers during the subprime mortgage crisis and crypto exchange Celsius.
