On Dec. 1, 2022, an attorney for the U.S. Trustee submitted a written letter to Delaware bankruptcy court officials that seeks to establish an independent examiner to investigate the FTX Chapter 11 bankruptcy proceedings. The U.S. Trustee explained in the letter that FTX’s collapse was comparable to complex bankruptcy cases like Lehman’s, Washington Mutual Bank’s, and New Century Financial’s. Moreover, while the U.S. Trustee submitted a filing that requested a third-party examiner, former FTX CEO Sam Bankman-Fried has continued to appear in numerous interviews with the media.
U.S. Trustee: An Examiner Should ‘Investigate the Substantial and Serious Allegations of Fraud’
The U.S. Trustee, a component of the U.S. Department of Justice, is getting involved with the FTX bankruptcy case after attorney Andrew Vara filed a request for an independent examiner. The regulatory entity is responsible for overseeing the administration of bankruptcy proceedings in order to make sure it protects the integrity of the Federal bankruptcy system.
Vara’s filing cites the current FTX CEO John Ray’s initial testimony, which noted at FTX there was a “complete failure of corporate controls [and] a complete absence of trustworthy financial information.” Vara says that the FTX collapse “is likely the fastest big corporate failure in American history, resulting in these ‘free fall’ bankruptcy cases.”
Furthermore, the U.S. Trustee attorney compared the FTX fallout to some of the largest bankruptcies in history. “Like the bankruptcy cases of Lehman, Washington Mutual Bank, and New Century Financial before them, these cases are exactly the kind of cases that require the appointment of an independent fiduciary to investigate and to report on the debtors’ extraordinary collapse,” Vara’s filing details. The U.S. Trustee believes that appointing an independent examiner would be in the interests of debtors and creditors.
Further, Vara insists that the FTX collapse should be investigated thoroughly for any types of financial misconduct and fraud. “An examiner could—and should—investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement by the debtors, the circumstances surrounding the debtors’ collapse, the apparent conversion of exchange customers’ property, and whether colorable claims and causes of action exist to remedy losses.”
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