On Thursday, the US Department of Justice’s bankruptcy watchdog called for an independent probe into the collapse of the FTX Group. It said that a neutral party should investigate the crypto exchange for allegations pertaining to “fraud, dishonesty, incompetence, misconduct, and mismanagement.”
The US Trustee—that is a part of the Department of Justice that oversees bankruptcy court—has asked FTX’s bankruptcy judge to appoint an examiner to look into the company’s insolvency proceedings. The examiner would publish a public report on FTX’s collapse and veer into allegations of wrongdoing.
US Trustee Andrew Vara wrote in a court document,
“An examiner could—and should—investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement” by FTX.
The official document also outlined that the examiner should also probe “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.”
Why an Independent Probe?
The document went on to acknowledge the “valuable preliminary work” done by the company’s new management to disentangle FTX’s problems.
Nevertheless, Vara added,
“The questions at stake here are simply too large and too important to be left to an internal investigation.”
With Sam Bankman-Fried stepping down from his executive position, FTX hired new CEO John Ray to help the company wade through bankruptcy. The latter has time and again asserted that investigating FTX’s collapse and recovering customer assets were among his top priorities.
Without questioning Ray’s competence or earnestness, Vara chalked out that the independent probe will allow FTX to devote more energy towards stabilizing FTX’s operations.
Ray recently said in a filing with the District of Delaware bankruptcy court that FTX’s lapses identified were greater than in any other process he has managed in his 40 years as a bankruptcy specialist.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”