A U.S. federal judge has taken steps to restrict the scope and duration of an external investigation into FTX Trading, a cryptocurrency company that has been plagued by allegations of fraudulent activities. The judge's reasoning is predicated on the notion that the ongoing insolvency proceedings involving FTX Trading should not be obstructed by the imposition of an additional, financially onerous, and time-consuming multimillion-dollar investigation. The judge's decision is based on the belief that such an inquiry would not serve the interests of the company's creditors and would not be in the best interests of the public.
U.S. Bankruptcy Judge John Dorsey has sided with the legal representatives of FTX and its creditors, who contended that the recent investigation, mandated by a federal appeals court in Philadelphia for the Chapter 11 case, should be succinct and constrained in its breadth.
While the appellate court had directed the appointment of an examiner earlier this month, it entrusted the specifics of the investigation to Judge Dorsey's discretion.
During this week's hearing, the Office of the U.S. Trustee, the federal entity responsible for overseeing corporate bankruptcies, advocated for keeping the cost, duration, and extent of the fresh investigation open until after the examiner's appointment.
However, Judge Dorsey expressed concerns that this approach could lead to unchecked expenses without yielding any substantial new findings.
"Left to an open process, that could involve tens of millions of dollars," the judge said.
Last week, the 3rd U.S. Circuit Court of Appeals in Philadelphia sided with the U.S. Trustee, which contended for the need to appoint an examiner under the U.S. Bankruptcy Code because of the scale of the case of FTX, and ordered an independent bankruptcy examiner to investigate the spectacular collapse of the crypto empire co-founded by controversial crypto mogul Sam Bankman-Fried.
The independent investigation, requested by the U.S. Trustee overseeing the crypto business' bankruptcy was approved since the court had found that the ongoing inquiry led by the court-appointed CEO John Ray III was insufficient and that an independent probe could restore confidence in the crypto industry.
"The collapse of FTX caused catastrophic losses for its worldwide investors but also raised implications for the evolving and volatile cryptocurrency industry," the judges wrote in their opinion" the court said.
"In addition to providing much-needed elucidation, the investigation and examiner's report ensure that the Bankruptcy Court will have the opportunity to consider the greater public interest when approving the FTX Group's reorganization plan," the court further said.
