US Trustee seeks appointment of examiner in FTX bankruptcy case
Andrew R. Vara, United States Trustee for Regions Three and Nine, through his counsel, has filed a Motion for the entry of an order directing the appointment of an examiner pursuant to 11 U.S.C. § 1104(c) in the FTX Chapter 11 bankruptcy case.
Over the course of eight days in November, beginning with reports of significant problems with one debtor’s (Alameda Research) balance sheet, the Debtors suffered a steep 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.
The Trustee argues that the appointment of an independent examiner would be in the interests of the Debtors’ creditors and other parties in interest in the Debtors’ estates, consistent with Code section 1104(c)(1). 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.
The appointment of an examiner is mandatory under 11 U.S.C. § 1104(c)(2) because the Debtors’ fixed, liquidated, unsecured debts to its customers alone far exceed section 1104(c)(2)’s $5 million threshold.
The Trustee notes that 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.
An examiner may also allow for a faster and more cost-effective resolution of these cases, the Trustee concludes.