After entering bankruptcy protection, the issue of the bankruptcy liquidation team “feeding themselves” has been a point of contention among creditors. The astonishing legal fees have also led the court to rule that FTX’s issues must be investigated by an independent examiner.
Background:
FTX Compensation Announcement Causes Outrage! Will Be Calculated Based on BTC 16,871 USD, ETH 1258 USD, SOL 16 USD Prices.
Cryptocurrency exchange FTX entered bankruptcy protection in November 2022. Subsequently, in February 2023, the U.S. Department of Justice’s bankruptcy regulatory agency, the Office of the United States Trustee, requested the appointment of an “independent examiner” by a judge to investigate allegations of fraud, improper conduct, and mismanagement by FTX. The reason is that the complex issues of FTX’s interests “cannot be left to internal investigation.”
The motion for an “independent examiner” was initially initiated by the Texas Securities Commission and received support from regulatory agencies in California, Florida, Hawaii, Idaho, and Washington D.C. They emphasized that due to the lack of transparency in FTX’s debtor’s financial condition and assets, appointing an independent examiner would be more favorable to creditors. However, Judge John Dorsey initially rejected this request in early February 2023, stating:
Court ruling: Appointment of an independent examiner is required!
However, the mounting legal fees in the FTX bankruptcy case have begun to draw the attention of the Office of the United States Trustee, and the bankruptcy court’s judge had previously approved the trustee’s motion to hire an independent examiner to investigate allegations of fraud, improper conduct, and mismanagement by FTX, as well as the costs associated with the bankruptcy liquidation process. The examiner would also be able to determine whether FTX still has any employees or executives engaged in improper conduct.
It is worth noting that according to crypto KOL @MrPurple_DJ, quoting the latest court documents, on January 19, the Third Circuit Court of Appeals in Philadelphia issued a mandatory sanction. FTX must be investigated by an independent examiner, and Judge Luis Felipe Restrepo cast doubt on the independence of FTX’s current CEO, John Ray. In addition, the current legal team, Sullivan & Cromwell, had previously served as advisors before FTX’s bankruptcy, and therefore does not meet the standard of “disinterested parties.”
Regarding the issue of the “independent examiner,” FTX’s current CEO and head of the bankruptcy liquidation, John Ray, strongly opposed it. He cited examples of working with examiners in the bankruptcy cases of Enron and Residential Capital that he previously led, which cost a whopping $90 million and $100 million, respectively, but had limited effectiveness. For example, the independent investigation report issued by the Enron examiner was “very shallow.”
Ironically, in late June of last year, independent auditor Katherine Stadler, appointed by the bankruptcy court, submitted a summary report of the fee review, which indicated that in the first seven months of the FTX bankruptcy case, lawyers, consultants, and other professionals had already charged up to $200 million in fees.
Related Reports:
FTX Further “Feeds Itself” with $4 million in Bonuses! Bankruptcy Team Explains: Retaining Key Employees to Protect Investors.
FTX Burns $30 million in Legal Fees in February! Bankruptcy Firm S&C Spends $13.5 million.
What Would You Do with $10 Billion? Three Arrows Capital’s Kyle Davies: Buy FTX and Restart, Definitely Profit.