Judge delays FTX examiner ruling in hopes of 'consensual resolution'

Quick Take

  • A Delaware bankruptcy judge did not rule on whether to appoint an independent examiner in the FTX case during a hearing on Monday.
  • Instead, lawyers will discuss a “consensual resolution” to the examiner issue and will update the judge at a hearing on Wednesday.

A federal bankruptcy court judge in Delaware did not rule on whether to appoint an examiner in FTX’s enormous bankruptcy case, and instead will allow lawyers to discuss a “consensual resolution” on the issue.

The U.S. Trustee responsible for federal oversight of the bankruptcy has requested the court appoint an independent examiner to investigate the failed crypto empire’s finances. Lawyers for the FTX debtors argued against appointing an examiner during a court hearing on Monday, saying it would be too expensive and could raise cybersecurity concerns. 

Lawyers for the U.S. Trustee, the FTX debtors, the creditors committee and the liquidators are expected to update the judge on their progress at the next FTX hearing on Wednesday in the U.S. Bankruptcy Court for the District of Delaware.

“It’s simply going to be a duplication of effort and an enormous amount of expense,” said James Bromley, a lawyer for FTX and other affiliated debtors, like Alameda Research. “We do not have enough money to pay back all of our creditors.”

Judge John Dorsey acknowledged on Monday that appointing an examiner could cost the bankruptcy estate hundreds of millions of dollars and discussed the possibility of giving the examiner a set budget to head off that concern. 

The fact that FTX has $1.2 billion in unrestricted cash “is not the point,” Bromley continued, because the debtors “need $8 billion of unrestricted cash.”

Arguments and cross-examinations lasted approximately five hours. After the lawyers finished closing arguments, Dorsey invited them to talk privately in his conference room to find a "consensual resolution" that would pre-empt a ruling by the judge.  

A similar examiner was appointed in the bankruptcy proceedings of crypto lender Celsius, and filed a bombshell report last week. Lawyers for the Official Committee of Unsecured Creditors of FTX and joint provisional liquidators in the Bahamas also argued against the examiner motion. 


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Millions of documents

FTX CEO John Ray III testified as a witness during the Monday hearing and offered a glimpse into the trove of documents and data his team has sifted through since the firm filed for bankruptcy protection in November. Ray has previously said that FTX’s old leadership did not keep trustworthy financial records. 

“The company was really unlike any other I’ve ever seen. Not a single list of anything,” Ray said, describing a hack into FTX shortly after the bankruptcy filing as “pure hell.”

Ray said he was paid $690,000, excluding expenses, for his work from Nov. 11, when he took over as CEO of the company, to Dec. 31.

The corporate empire's new management has collected millions of documents and fielded hundreds of government requests in the last several months. FTX has collected more than 10 terabytes of data, or 27 million documents.

The firm is cooperating with criminal and regulatory investigators, fielding 156 requests from prosecutors in the Southern District of New York, the office that filed criminal charges against former FTX CEO Sam Bankman-Fried two of his top lieutenants. FTX has produced 70,000 documents for investigators and gave four presentations based on “synthesis of evidence,” according to Ray.  

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


About Author

Stephanie is a senior reporter covering policy and regulation. She is focused on legislation, regulatory agencies, lobbying and money in politics. Stephanie is based in Washington, D.C.


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