US district judge sends matter of FTX independent examiner to appellate court

A bankruptcy judge denied a motion for an independent examiner in February, leading to an appeal that may now go to the U.S. Court of Appeals for the Third Circuit.

A United State district judge has referred a motion requesting the appointment of an independent examiner for bankrupt crypto exchange FTX to appellate court.

In documents filed in U.S. District Court for the District of Delaware on May 30, Judge Colm Connolly said the U.S. trustee in FTX’s case, Andrew Vara, requested an appeal following the bankruptcy court rejecting a motion in February to appoint an examiner overseeing the failed crypto exchange. According to court filings, bankruptcy laws allow the appointment of an independent examiner when certain conditions are met — as in the case of FTX — but do not require it.

“Whether [law] mandates the appointment of an examiner upon the U.S. Trustee’s request when the debtor’s debts specified in the statute exceed $5 million is, of course, a question of law,” said Connolly. “Because the Bankruptcy Court rejected the Trustee’s request for the appointment of an examiner based in part on its answer to that question, […] Certification of the Order for an appeal to the Third Circuit is therefore required.”

Lawyers for FTX debtors have argued that the appointment of an examiner in the bankruptcy case would cost roughly $100 million and “provide no benefit” for creditors. However, Vara — representing the interests of the U.S. Justice Department — and several U.S. lawmakers have called on the court to do so to prevent potential conflicts of interest.

Bankruptcy Judge John Dorsey denied Vara’s motion in February, leading to the U.S. trustee appealing in March. The matter will now likely go to the U.S. Court of Appeals for the Third Circuit.

FTX filed for Chapter 11 bankruptcy protection in November 2022, while the criminal case against former CEO Sam Bankman-Fried continues to move forward. Bankman-Fried has largely been confined to his parents’ California home since his extradition from the Bahamas to the U.S. in December, with his trial expected to begin in October.

Magazine: Can you trust crypto exchanges after the collapse of FTX?