According to a report by The Block, the Third Circuit Court of Appeals in Philadelphia ruled last Friday (19th) that FTX must undergo an independent examiner’s investigation. The U.S. Trustee responsible for overseeing the FTX bankruptcy case had previously requested the appointment of an independent examiner, but the request was opposed by FTX’s current CEO and rejected by the Delaware Bankruptcy Court judge overseeing the bankruptcy proceedings. However, this ruling was sent back for reconsideration last Friday. One of the appellate court judges wrote in a precedent opinion that an investigation conducted by current CEO John Ray III was insufficient, and an independent examination could reveal new insights into the practices of the cryptocurrency industry.
Judge Luis Felipe Restrepo wrote that an examiner should not be a party with a vested interest or connected to the debtor. The judge explained that there are concerns about FTX employees who may have participated in fraud possibly remaining within the FTX group, and FTX’s legal team, Sullivan & Cromwell, had previously served as pre-litigation advisors to FTX.
Restrepo also wrote that according to the Bankruptcy Code, if a debtor’s debts exceed $5 million, then the appointment of an examiner is necessary, and the FTX case clearly meets this criterion. The judge stated that an independent investigation into FTX would be beneficial for the entire cryptocurrency industry.
The precedent opinion stated:
