The bankruptcy monitor of the US Department of Justice demanded an impartial investigation into the demise of the FTX Group on Thursday. It stated that a third party should look into claims of “fraud, dishonesty, incompetence, misconduct, and mismanagement” against the cryptocurrency exchange.
The US Trustee has requested that the bankruptcy judge for FTX appoint an examiner to look into the company’s insolvency proceedings. The US Trustee is a division of the Department of Justice that oversees bankruptcy court. The examiner would issue a public report on FTX’s failure and stray into misconduct accusations. 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.
According to the official document, the examiner must also look into “the circumstances behind the debtors’ collapse, the apparent conversion of exchange customers’ property, and whether colorable claims and causes of action exist to restore damages.”
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.”
After Sam Bankman-Fried resigned from his senior role, FTX appointed John Ray as its new CEO to steer the business through bankruptcy. The latter has often stated that his primary goals were looking into the collapse of FTX and retrieving consumer assets.
Without casting doubt on Ray’s knowledge or sincerity, Vara outlined how the impartial investigation will free up FTX to focus more of its efforts on stabilizing its business operations.
In a recent petition with the District of Delaware bankruptcy court, Ray said that the process flaws at FTX were the worst he had ever seen in the 40 years he had worked 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.”
