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A growing chorus of regulators wants an independent examiner appointed to review the financial statements, or lack thereof, in the FTX bankruptcy proceedings.
“Texas, among several other state and federal regulators, is currently investigating the Debtors and their related entities for violations in connection with their transaction of business in Texas and with Texas account holders,” wrote attorney Roma Desai on behalf of Texas Attorney General Ken Paxton.
The statement from the Texas attorney's office follows similar motions from Wisconsin and Vermont regulators. The new court filing on Wednesday included letters of support from banking and securities officials in a handful of other states: Alaska; Arkansas; California; Florida; Hawaii; Idaho; Illinois; Kentucky; Maine, Maryland, New Hampshire, New Jersey, North Carolina, Oklahoma, Tennessee, and D.C..
If an examiner is appointed in the FTX case, it won’t be without some precedent.
Earlier this week the independent examiner who dug through bankrupt crypto lender Celsius released their 689-page report, concluding that problems at the company “dated back to at least 2020.”
The downfall of FTX
FTX and its related entities, including trading desk Alameda Research, filed for bankruptcy on November 11. Days later, newly appointed FTX CEO John Ray III, who’s overseeing the company’s restructuring, wrote in his first day declaration that the lack of corporate governance at the insolvent crypto exchange trumped anything he’d ever seen. He called the former leadership team, led by FTX founder Sam Bankman-Fried, “inexperienced, unsophisticated and potentially compromised.”
Although FTX’s restructuring team has maintained that it can untangle the mess it’s been left with, the U.S. Trustees appointed to oversee its bankruptcy proceedings aren’t convinced.
The U.S. Trustee, appointed by the Department of Justice to oversee FTX’s bankruptcy case, filed a motion to have an examiner appointed to “investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct, and mismanagement” on December 1.
A month later, the committee of unsecured creditors, people and companies with claims against FTX, objected to the motion, arguing that hiring an examiner could cost “as much as $50 to $100 million.” When the court appoints an independent examiner, it’s paid for by the debtor.
Attorneys representing FTX’s restructuring team filed their own objection the same day, on January 25.
“The pieces of the FTX corporate puzzle are day by day being put back together under the supervision of new and independent management with the participation of the statutorily mandated Committee,” Adam Landis, the lead attorney, wrote. “The appointment of an examiner would be duplicative of the efforts of Mr. Ray, the Board, the Debtors, their advisors, and the Committee and their advisors.”