• Sat. Jun 22nd, 2024

FTX Bankruptcy Lawyer Claims Independent Examiner Would Put Assets At Risk

Feb 7, 2023

The judge who is presiding over the bankruptcy case of the FTX crypto exchange has still not come to a decision about whether an independent examiner should be appointed or not.

This was after a hearing that went on for four hours and also included testimony from the new chief executive of the crypto exchange, John Jay Ray III, who is overseeing the restructuring process.

The judge’s statement

The bankruptcy proceedings are being overseen by US Judge John Doresey. On Monday, he told the FTX attorneys, the unsecured creditor committee, the Joint Public Liquidators of the Bahamas, and the US Trustee to reach a ‘consensual resolution’.

Another court hearing in the case is scheduled for Wednesday, but there is no indication that a ruling will come from the judge then either.

The new CEO had been appointed on the day FTX filed for bankruptcy and Sam Bankman-Fried stepped down from his position on November 11th.

Once one of the biggest crypto exchanges in the industry, the company has been accused of using customer funds to support Alameda Research, the sister trading firm that had also been founded by SBF.

The Testimony

On Monday, Ray stated in his testimony that he and his team had been receiving requests from federal and state investigators on a daily basis.

He also testified that he had overseen two bankruptcies prior to this one and had not found the examiner’s report to be very helpful.

He had overseen the bankruptcies of Residential Capital and Enron and said that the reports had not added much to the conclusion.

The legal team of the company has argued that hiring an independent examiner would cost significantly and mostly duplicate the work that Ray and his team have already been doing.

From his appointment to the end of last year, the new CEO said that the work he had already done for the company was about $690,000.

The arguments

However, Juliet Sarkessian, the US Trustee who has been assigned to the FTX case, has argued that regulators in 18 states have called for the appointment of an independent examiner.

Texas was the latest state to do so, as it filed the joinder with 15 other states in the previous week. An FTX lawyer, James Bromley responded to the statement.

He said that they would risk the security of everything by allowing anyone into the cybersecurity environment.

He added that the US Trustee’s Office believes they are dealing with something physical, but it is actually a virtual environment that comprises code.

After filing for bankruptcy in November, the company saw crypto assets worth millions of dollars leave in ‘unauthorized transfers’.

The restructuring team said in the previous month that on November 12th, $90 million in funds had been stolen from FTX.US.

There have also been signs that FTX liquidators are not aware of how to navigate the process of dealing with the crypto assets they have to account for and recover.

Ray highlighted the lack of corporate controls at FTX and stated in a court document that it was similar to a dumpster fire.

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