State officials support push for independent examiner in FTX bankruptcy

Quick Take

  • Officials from several U.S. states have joined Texas to ask a federal bankruptcy court judge to appoint a third-party examiner of FTX’s finances.
  • The officials filing have ongoing regulatory actions against FTX.

Officials from more than a dozen states want a federal bankruptcy judge to appoint a third-party examiner of FTX's finances, citing the need for more transparency about the collapsed crypto exchange's assets.

The motion, led by the Texas State Securities Board, and joined by regulators from Alaska, Arkansas, California, Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Maryland, New Hampshire, New Jersey, North Carolina, Oklahoma, Tennessee and Washington, D.C., cites “the magnitude and history of mismanagement” by FTX and Alameda’s previous leadership, as noted in bankruptcy and congressional testimony by current caretaker Chief Executive Officer John Ray III.

The officials assert that, “the lack of transparency into the financial condition and assets of the debtors, and the continued regulatory investigations that are ongoing, the appointment of an examiner with specific guidelines as to their duties is not only appropriate and in the best interest of creditors, but mandatory,” under bankruptcy law.

The motion joins previous requests for an examiner made by the U.S. Trustee, an office within the Justice Department tasked with promoting efficiency and transparency in the bankruptcy process, as well as officials from Wisconsin and Vermont.

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If appointed, the examiner would provide a detailed report to the court on the finances of FTX.com, Alameda Research, and most of the other FTX subsidiaries across the globe, rather than the court relying solely on the current leadership of FTX and lawyers hired to liquidate Bahamian holdings. A similar examiner was appointed in the ongoing bankruptcy process of failed crypto lender Celsius, leading to the filing of a bombshell report on the company's demise in that company's ongoing bankruptcy process. 

Caretaker leadership and lawyers for the corporate family reported approximately $1.4 billion in remaining assets in court yesterday. They have pushed back against the possibility of an examiner, citing the cost of hiring one.

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.


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