The investigation results from a recent order from a Philadelphia court of appeals that requires the appointment of an examiner. Judge John Dorsey emphasized the potential cost of such an examination, commenting in a hearing today:
“Left to an open process, [the examination] could involve tens of millions of dollars.”
As such, Judge Dorsey moved to limit the cost and duration of the examiner’s investigation. The entire process should take no more than 45 days and will end with a summary of the probe, according to the current report.
The examiner will review investigations into FTX previously conducted by restructuring professionals, regulators, and prosecutors. It will also attempt to find any possible conflicts of interest among lawyers, Bloomberg said.
Philadelphia called for probe on Jan. 19
Previously, Reuters reported the appointment of an examiner on Jan. 19. That report said that the 3rd U.S. Circuit Court of Appeals in Philadelphia ruled in favor of the U.S. Trustee, which had argued for the need to appoint an examiner under the U.S. Bankruptcy Code due to the scale of the FTX case.
FTX’s replacement CEO, John Ray III, and its unsecured creditors’ committee reportedly opposed the appointment of an examiner at that time.
The unsecured creditors’ committee instead asked for restrictions on the examination process in a letter filed on Jan. 24. That letter argues that FTX’s Chapter 11 case is in its advanced stages and states that a recovery plan will soon begin. It recommends for the examination to be “limited in scope, duration and cost” without delaying the effectiveness or confirmation of the recovery plan, and without delaying distributions of funds to customers and creditors.
FTX originally collapsed and entered bankruptcy in November 2022. Its founder and former CEO, Sam Bankman-Fried, has been found guilty of various criminal charges and is set to be sentenced on March 28.