Judge to rule on Enron-style inquiry for FTX
The legal drama surrounding the spectacular collapse of the FTX crypto exchange is set to continue next week as creditors clamour for their money back and as more information emerges.
At a bankruptcy hearing in Delaware on Tuesday, a judge will look at whether an independent examiner should be appointed to investigate the causes of FTX’s collapse. A further bankruptcy hearing will be held on Thursday.
Once valued at US$32 billion ($NZ50b), FTX filed for bankruptcy in November after customers rushed to withdraw their funds, exposing a US$8b hole in the balance sheet. The collapse left more than a million creditors out of pocket.
Sam Bankman-Fried, the firm’s founder, has been charged by federal prosecutors with fraud, money laundering and violating campaign financing laws. A court-approved examiner could be appointed to produce a public report on the events that led to FTX’s collapse as part of the bankruptcy proceedings. Independent examiners have been appointed to investigate the failures of big firms such as Lehman Brothers, the US investment bank that collapsed in 2008, and Enron, the energy group that failed in 2001.
Andrew Vara, a US bankruptcy trustee, has called for an independent examiner to be appointed because of the significant public interest in the case.
A criminal case is also under way, with Bankman-Fried’s trial due to start in October. Last month he denied charges of cheating investors and of misusing customer funds. The FTX founder was arrested in December after being extradited from the Bahamas to the
US to face criminal charges.
Last week a judge temporarily banned Bankman-Fried from contacting staff at FTX and his Alameda Research hedge fund, over concerns that he could tamper with witnesses. He is also banned from using encrypted messaging apps.
The collapse of FTX has had a domino effect on the industry. In recent months the lending business of Celsius, once called the Goldman Sachs of crypto, and BlockFi have also gone under.