FTX case needs examiner to assess ‘extraordinary collapse,’ U.S. trustee says

By Sarah Lizee

Olympia, Wash., Dec. 1 – FTX Trading Ltd.’s Chapter 11 bankruptcy case should have an examiner appointed to it, Regions 3 and 9 U.S. trustee Andrew R. Vara said, according to a motion filed Thursday with the U.S. Bankruptcy Court for the District of Delaware.

Last month, beginning with reports of significant problems with debtor Alameda Research’s balance sheet, FTX and its affiliates suffered a virtually unprecedented decline in value – from a market high of $32 billion just earlier this year – and a severe liquidity crisis after a proverbial “run on the bank” amid revelations of multiple corporate failures and misuse of customer funds facilitated by “software to conceal” it, Vara told the court.

“The result is what is likely the fastest big corporate failure in American history, resulting in these ‘free fall’ bankruptcy cases,” the U.S. trustee said.

The debtors’ roughly 1 million worldwide creditors, outside investors and regulators are demanding answers to what happened and how, Vara stated.

“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 said.

He explained that an examiner could 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.

An examination is preferable to an internal investigation under the facts of these cases because the findings and conclusions of the examination will be public and transparent, which is especially important because of the wider implications that FTX’s collapse may have for the crypto industry, Vara added.

FTX has headquarters in The Bahamas. The company filed Chapter 11 bankruptcy on Nov. 11 under case number 22-11068.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.