According to a report by “The Block,” the Philadelphia Third Circuit Court of Appeals ruled last Friday (19th) that FTX must accept an independent investigator’s investigation. The U.S. Trustee responsible for overseeing the FTX bankruptcy case had previously requested the appointment of an independent investigator, but this was opposed by FTX’s current CEO and rejected by the Delaware Bankruptcy Court judge overseeing the bankruptcy proceedings. However, this ruling was sent back for reconsideration last Friday. One of the appellate court judges wrote in a precedent opinion that an investigation conducted by current CEO John Ray III is insufficient, and an independent investigation may reveal new insights into practices in the crypto industry.
Judge Luis Felipe Restrepo wrote that the investigator should not be a party with a conflict of interest or connected to the debtor. The judge explained that there are concerns about potentially fraudulent FTX employees who may still be part of the FTX group, and furthermore, FTX’s legal team at Sullivan & Cromwell law firm was a pre-litigation advisor to FTX.
Restrepo also wrote that under the Bankruptcy Code, if a debtor’s debt exceeds $5 million, appointing an examiner is necessary, which clearly applies to the FTX case. The judge stated that conducting an independent investigation into FTX would be beneficial for the entire cryptocurrency industry. The precedent opinion stated: