FTX bankruptcy judge denies US trustee’s motion to appoint independent examiner

Judge John Dorsey of the United States Bankruptcy Court for the District of Delaware has denied a motion appointing an independent examiner for FTX.

In a Feb. 15 hearing, Judge Dorsey said he had some discretion under the law to choose whether to appoint an examiner in the FTX bankruptcy case despite some of the parties meeting the debt threshold with the loss of funds. According to the judge, appointing an examiner would be an “unnecessary burden” on FTX’s debtors and creditors, citing the additional expense.

“There’s no question that if an examiner is appointed here, the cost of the examination given the scope suggested by the Trustee at the hearing, would be in the tens of millions of dollars, and would likely exceed one hundred million dollars,” said Dorsey. “Given the facts and circumstances of this highly unique case, I have no doubt that the appointment of an examiner would not be in the best interest of the creditors.”

The judge added:

“Every dollar spent in these cases on administrative expenses is a dollar less to the creditors.”

He also cited CEO John Ray’s experience taking over other companies “in dire financial condition” and his decision to appoint four directors to oversee the silos compromising FTX following the removal of previous leadership — some of whom, including former CEO Sam Bankman-Fried, have been indicted in federal court. Judge Dorsey ruled that Ray was “completely independent of prior management and the companies he was appointed to lead.”

Dorsey’s ruling was in response to a Dec. 1 motion from U.S. Trustee Andrew Vara, who argued that an examiner was “unquestionably in the interests of the Debtors’ creditors.” He added that independent investigations could explore whether software was allegedly used to conceal the misuse of FTX user funds, as well as the absence of proper recordkeeping at the firm.

Related: US lawmakers call on court to approve ‘independent examiner’ in FTX bankruptcy case

Bankruptcy proceedings for FTX have been ongoing since the firm filed for Chapter 11 in November 2022. Debtors in the case recently filed that they had issued subpoenas to FTX insiders, including Bankman-Fried, ordering the former executives to turn over certain documents and information.