Appeals court orders an independent scrutiny of FTX bankruptcy

• The federal appeals court in Philadelphia ordered that an independent examiner be appointed to scrutinize the FTX collapse.
• Bankruptcy court judge John Dorsey had earlier denied the trustee’s request.

A federal appeals court has ordered following a three-judge bench decision that an independent examiner should scrutinize FTX’s bankruptcy case.

Federal court orders for appointment of an examiner in FTX case

The Associated Press reported on Tuesday that the appeals court in Philadelphia has reversed an earlier ruling denying a US bankruptcy trustee’s request for an independent examiner. US bankruptcy judge John Dorsey dismissed the trustee’s request in February last year.

Judge Dorsey had agreed with FTX’s argument that an examiner’s involvement would only duplicate what new CEO John Ray III, federal agencies and the committee of unsecured creditors was doing. 

FTX also argued that having an independent examiner was too costly.

But in its ruling last Friday, the appeals court agreed with the bankruptcy trustee’s position that FTX’s collapse, which followed allegations of massive fraud, warrants an independent review rather than rely on an internal investigation.

Judge Luis Felipe Restrepo, writing for the appeals court panel, noted that the trustee’s case raised “straightforward issues” and that the bankruptcy code provides for an independent examiner’s appointment.

An examiner, judge Restrepo said, will make public all findings. Debtor or creditors’ committees do not have such an obligation.

FTX filed for bankruptcy in November 2022 and its founder and former CEO Sam Bankman-Fried is awaiting sentencing after he was found guilty on all charges, including fraud. The sentencing is scheduled for March 2024. 

Earlier this month, US prosecutors hinted at not pursuing a second trial for Bankman-Fried.