Texas, New Jersey And California Call For Independent Examiner In FTX Bankruptcy

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An increasing chorus of regulators is demanding the appointment of an independent examiner to assess the financial statements, or their absence, in the bankruptcy proceedings of the FTX crypto exchange.

Writing on behalf of Ken Paxton, the Texas Attorney General, lawyer Roma Desai said that Texas, like other federal and state regulators, was currently conducting an investigation.

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The lawyer said that they were looking into the violations of the debtors and all other entities related to them in connection with their business transactions in the state and with account holders in Texas.

Similar motions

The Texas attorney’s office was not the only one to have issued such a statement, as regulators in Vermont and Wisconsin had also made similar motions.

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On Wednesday, the new court filing also included letters of support from securities and banking officials in a number of other states.

These include North Carolina, California, Florida, Arkansas, Tennessee, Kentucky, Oklahoma, Maine, Hawaii, Alaska, D.C., New Jersey, Maryland, Idaho, New Jersey, and Illinois.

If they do adopt an examiner for overseeing FTX’s bankruptcy proceedings, they would need a precedent to do so.

Earlier this week, a 689-page report was published by the independent examiner overseeing the Celsius Network’s bankruptcy proceedings and declared that problems for the crypto lender had started back in 2020.

FTX’s downfall

FTX and its subsidiaries, including its sister trading firm, Alameda Research, filed for Chapter 11 bankruptcy in November.

John Ray III had been appointed as the new CEO to oversee the restructuring of the company and in his first day declaration, he had said that he had not seen such a lack of governance anywhere before.

He referred to the former leadership team under Sam Bankman-Fried as unsophisticated, inexperienced, and possibly compromised.

Even though the restructuring team claims that they would be able to sort out the mess, the US Trustees who have been appointed for overseeing the proceedings do not agree.

More details

The Department of Justice (DOJ) appointed the US Trustee for overseeing the FTX bankruptcy case and they filed a motion for appointing an independent examiner.

The motion was filed on December 1st and asked for an appointment for investigating the serious and substantial allegations of incompetence, fraud, mismanagement, misconduct, and dishonesty.

However, an objection to the motion was filed a month later by companies, the committee of unsecured creditors, and other people who have claims against FTX.

They said that the cost of hiring an independent examiner would be around $50 million to $100 million. The debtor has to pay for the examiner, even if one is appointed by the court.

On January 25th, lawyers for FTX’s restructuring team also filed their objection. The lead attorney, Adam Landis, said that they were putting together the FTX puzzle piece by piece.

He said that hiring an independent examiner would only mean that they duplicate the efforts of the CEO, the Debtors, the Board, the Committee, and all other advisors.

Editorial credit: Poetra.RH / shutterstock.com

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