An expert investigation into the collapse of FTX could cost the firm more than $100 million with no benefit to creditors or shareholders, lawyers representing the bankrupt cryptocurrency exchange say.
The arguments were part of a January 25 objection to the United States Trustee’s motion in December, which called for the judge to appoint an independent expert to ensure the transparency of any investigations and publicize their results.
It will be exciting.
4 senators sent a letter asking for an independent review. Will they do more?
Several states have filed suit with FTX. Will they support the Examiner?
The SEC asked for an independent expert at Enron. Will they say anything here? https://t.co/KiSZKYonCD
— MetaLawMan (@MetaLawMan) January 26, 2023
FTX lawyers argued that creditors would not benefit from an expert investigation that duplicated investigations by FTX CEO John J. Ray III, the creditors’ committee, law enforcement, and Congress, adding:
“It can be expected that the appointment of an auditor with a mandate to be determined will cost these estates tens of millions of dollars. In fact, based on history, the cost could be around $100 million or even more.”
The Committee of Creditors, also known as the Official Committee of Unsecured Creditors, filed its own objection to the appointment of an independent auditor on January 25, also citing prohibitive costs and ongoing investigations by various parties.
In the original motion, the US Trustee noted that if the court was concerned about duplication of work, it could allow the examiner access to the existing work, adding:
“The Examiner can also ensure that these cases are resolved more quickly and cost-effectively by allowing Mr. Ray to focus on his primary responsibility of stabilizing the Debtors’ business while allowing the Examiner to conduct the investigation.”
Joint interim liquidators in the Bahamas and FTX.US also opposed the Jan. 25 appointment, pointing to a section of the bankruptcy code that allows a judge to appoint an auditor “in due course” and arguing that the unnecessary expense and delay that would accompany appointing an examiner does his “inappropriate”.
Related: Breach: Uncensored BlockFi Financial Reports Reportedly Show $1.2 Billion FTX Impact
The appointment of an independent auditor was a key theme during the FTX bankruptcy litigation.
On December 9, a group of four U.S. Senators, including Elizabeth Warren, wrote an open letter to Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware, arguing that FTX Sullivan and Cromwell’s lawyer had a conflict of interest in the case, and doubts about their the ability to provide conclusions that inspire confidence.
However, on January 20, the judge ruled that there were no potential conflicts of interest sufficient to prevent the law firm from continuing to act as an advisor to FTX.
The judge will decide whether to agree to the appointment of an independent expert at a hearing on February 6.
Independent experts are often appointed by bankruptcy courts to investigate the details of complex cases referred to them and have been appointed in other high-profile bankruptcy cases such as Lehman Brothers during the subprime mortgage crisis and the Celsius cryptocurrency exchange.