FTX bankruptcy judge rejects call for new investigation into crypto exchange's collapse

A US bankruptcy judge on Wednesday denied calls for a new, independent probe into FTX's collapse, saying that it would be redundant to other investigations being carried out by the crypto exchange's new management and law enforcement.

US Bankruptcy Judge John Dorsey rejected the US Department of Justice's request for an independent examiner at a hearing on Wednesday in Wilmington, Delaware, noting the proposed investigation would likely cost more than US$100 million (about RM442 million) and undermine FTX's goal of "returning 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 dollar less for the creditors."

The US Trustee, the Justice Department's bankruptcy watchdog, hadargued that an independent examiner 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 that the proposed examiner would merely duplicate work already being done by FTX, its creditors, and law enforcement agencies.

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

Dorsey expressed confidence at Wednesday's hearing in the investigation already being handled by FTX's new CEO, John Ray. Ray is a "consummate professional" with decades of experience cleaning up the mess left by troubled companies, and he is wholly 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 its bankruptcy.

FTX’s bankruptcy attorneys at Sullivan & Cromwell, some of whom are charging over US$2,100 per hour, have incurred nearly US$25 million in fees for work performed from Nov 12 through Dec 31, according to recent court filings. An attorney for FTX said the company will propose someone for the role of fee examiner after consulting with its creditors.

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

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

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