FTX Bankruptcy Hearing: Is an Independent Examiner Needed?
TL:DR:
- FTX is facing a bankruptcy proceeding in court, with the next hearing scheduled for Wednesday
- The company is accused of commingling client funds with those of its sister company, Alameda Research
- The legal team for FTX and the U.S. Trustee have been in a debate about the appointment of an independent examiner for the case
No More Glory Days
FTX, once a leading player in the cryptocurrency industry, is now facing bankruptcy proceedings in court. The judge overseeing the case, John Doresey, asked the lawyers representing FTX, the unsecured creditor committee, U.S. Trustee, and the Joint Public Liquidators of the Bahamas to discuss “a consensual resolution.” The next hearing is scheduled for Wednesday, and it remains unclear if the judge will make a ruling then.
FTX CEO John Ray III was appointed after the company filed for bankruptcy and founder Sam Bankman-Fried stepped down on November 11, 2022. During Monday’s hearing, Ray testified that he has been fielding daily requests from state and federal investigators and that he did not find the reports of examiners helpful in two prior bankruptcies he oversaw.
No Need For Examiner
The FTX legal team has argued that an independent examiner would be costly and duplicate the work that Ray’s team has already done since November. Meanwhile, the U.S. Trustee assigned to the case, Juliet Sarkessian, has argued that 18 states, including Texas, have voiced support for the appointment of an examiner.
An independent examiner is a neutral party appointed by a court to investigate and report on various aspects of a bankruptcy case, such as the financial status of the debtor, the distribution of assets, or the validity of claims. In the FTX bankruptcy hearing, an independent examiner may be appointed to review the company’s financials, evaluate the claims of creditors, and make recommendations to the court on the best course of action to maximize the value of the assets for all parties involved. The independent examiner’s report may also assist the court in making decisions related to the discharge of debt and the reorganization of the company.
James Bromley, an FTX attorney, argued that allowing anyone else into the company’s virtual environment would jeopardize its cybersecurity. He likened it to a warehouse full of sacks of potatoes, saying, “we do not have a warehouse full of sacks of potatoes. We have a virtual environment that is filled with code and even looking at that code puts it at risk.”
Lack of Corporate Controls
Ray has also spoken about the lack of corporate controls in FTX’s pre-petition environment and how insiders were able to freely transfer assets of the company with no accountability. This, along with the company’s lack of understanding on how to navigate the crypto assets they’ve been charged with, has raised further concerns about the security of the assets.
The future of FTX’s assets remains uncertain as the legal teams continue to debate the appointment of an independent examiner. As the hearing continues, it’s important to follow the latest developments in this case.
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