FTX bankruptcy judge rejects demands for new investigation into crypto exchange collapse

Feb 15 (Reuters) – A U.S. bankruptcy judge on Wednesday rejected calls for a new, independent investigation into FTX’s collapse, saying it would be redundant to other investigations being conducted by the crypto exchange’s new management and law enforcement.

U.S. Bankruptcy Judge John Dorsey rejected the U.S. Department of Justice’s request for an independent investigator at a hearing Wednesday in Wilmington, Delaware, noting that the proposed probe would likely cost more than $100 million and undermine FTX’s goal of “adding value to creditors.” “

“There are already multiple investigations underway by incredibly competent and independent parties,” Dorsey said. “Every dollar spent on administrative expenses in these cases is one less dollar for the creditors.”

The US trustee, the Justice Department’s bankruptcy watchdog, had argued that an independent investigator should be appointed to investigate allegations of “fraud, dishonesty, incompetence, misconduct and mismanagement” that were “too important to be left to an internal investigation”.

FTX and the committee representing its junior creditors opposed that demand, saying the proposed examiner would merely duplicate work already being done by FTX, its creditors and law enforcement agencies.

The proposed investigation would also drain millions of dollars from FTX’s limited funds, the company argued.

Dorsey expressed confidence during Wednesday’s hearing in the investigation that is already being handled by FTX’s new CEO, John Ray. Ray is a “consummate professional” with decades of experience cleaning up the mess of troubled companies, and he is completely independent of FTX’s past misconduct, Dorsey said.

Dorsey also said Wednesday that he intends to appoint a fee examiner to oversee FTX’s spending on professional fees in the bankruptcy.

FTX’s bankruptcy attorneys at Sullivan & Cromwell, some of whom charge more than $2,100 an hour, have incurred nearly $25 million in fees for work done from Nov. 12 to Dec. 31, according to recent court filings. A lawyer for FTX said the company will nominate someone for the role of fee examiner after consulting with creditors.

FTX, once among the world’s top crypto exchanges, rocked the sector in November by filing for bankruptcy, leaving an estimated 9 million customers and investors with billions of dollars in losses.

FTX founder Sam Bankman-Fried, who has been accused of stealing billions of dollars from FTX clients to pay off debts incurred by his Alameda Research hedge fund, has pleaded not guilty to fraud charges.

He is scheduled to go on trial in October. Several former senior executives, including Alameda Research CEO Caroline Ellison, have pleaded guilty to fraud.

Reporting by Dietrich Knauth, editing by Deepa Babington and Alexia Garamfalvi

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