FTX's new management team told judge a Justice Department Examiner would cost the exchange's customers a fortune as well as delaying a settlement.
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Crypto exchange FTX's post-bankruptcy management is fighting the appointment of an independent examiner that it says will cost creditors as much as $100 million without adding any real value.
The issue arose after the U.S. trustee that oversees federal bankruptcy cases asked for one, saying that an independent investigation into what happened at FTX is both vital and required by law in this case.
On Monday, James Bromley, who represents FTX, Alameda Research and about 100 other companies under the FTX Group umbrella, told a Delaware bankruptcy judge that an examiner's report is "simply going to be a duplication of effort and an enormous amount of expense," adding that it could run to "tens or even hundreds of millions of dollars," The Block said.
It would also delay any resolution and payout to millions of creditors, with Judge John Dorsey pointing out that he could hardly approve a bankruptcy plan while an examiner's report is in progress.
And it would likely be a very long process. The New York examiner appointed to report on the collapse of crypto lender Celsius delivered a blistering report nearly 700 pages long last week, detailing the findings of a four-month investigation. And that was orders of magnitude less complex than unraveling Sam Bankman-Fried's empire will be.
Even the U.S. trustee's lawyer, Juliet Sarkessian, acknowledged the scale of the job, calling FTX "a dumpster fire" on Monday.
Beyond the Bankruptcy
But she also said it was exactly that type of case Congress intended to be investigated by a Justice Department examiner when it wrote the statute. In her December filing requesting the appointment, Sarkessian said:
"An examiner could — and should — investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement by the debtors, the circumstances surrounding the debtors' collapse, [and] the apparent conversion of exchange customers' property."
While saying she respected new FTX CEO John Ray III and the work he is doing, his fiduciary responsibility is to the debtor company. That role, Sarkessian added, "may not necessarily be aligned with those of all other interested parties."
Noting that an independent examiner would be a "true neutral," she said that its investigation's "findings and conclusions will be public and transparent, which is especially important because of the wider implications that FTX's collapse may have for the crypto industry." Sarkessian added:
"An examiner's findings likely would enjoy broader acceptance and credibility than an examination conducted by any stakeholder in these cases."
Nearly 20 states' securities regulators have also asked for an examiner, with Texas arguing that its concurrent investigation of FTX "would benefit from working with and gaining this information from a neutral third-party investigator whose focus is on investigating the Debtors as opposed to running the Debtors' business."
The judge punted, asking the parties to try and reach an agreement.
