Judge Moves to Limit Length and Scope of New FTX Bankruptcy Probe

• Judge John Dorsey said the new FTX bankruptcy probe should be limited in scope and length. 
• The judge said an extended inquiry would be a recipe for a runaway cost that won’t yield anything new. 
• Dorsey mandated FTX and its creditor’s counsels to work with the US Trustee on the appointment of an examiner.

US Bankruptcy Judge John Dorsey, the judge overseeing the FTX Chapter 11 proceedings, has moved to restrict the scope and expense of a fresh independent investigation in the crypto exchange, Bloomberg reported. The judge argued that another multimillion-dollar inquiry should not disrupt the defunct cryptocurrency exchange’s bankruptcy case.

The move by the judge came after a Federal Appeals Court in Philadephia ordered the appointment of an examiner for the bankruptcy process. However, the order which came earlier in the month left the details of any investigation up to Dorsey.

Attorneys for FTX and its creditors contended that the fresh inquiry mandated by the appeal court had to be constrained in length and scope. On the other hand, the Office of the US Trustee argued that the cost, length, and scope of the new investigation should be left open until after the appointment of an examiner. 

However, Dorsey sided with the FTX counsels, saying the Office of the US Trustee’s argument was a recipe for runaway costs that won’t turn up anything new. “Left to an open process that could involve tens of millions of dollars,” Dorsey said during a court hearing in Wilmington, Delaware.

The judge stated that in the next few weeks, counsel representing FTX, its creditors, and the US Trustee should collaborate on a formal proposer to appoint an examiner. Dorsey also asked that the examiner look into the various investigations into FTX by the company’s new executives and outside probes by regulators and prosecutors. 

Furthermore, the judge stated that the examiner should consider any potential conflicts of interest involving FTX lawyers. The entire process should take no more than 45 days and end with an examiner’s report summarizing the inquiries, he noted.

This development comes as the executives of FTX, which collapsed in 2022, move to settle customers’ claims and weigh a possible restart. Since late last year, the defunct crypto exchange worked on a repayment plan, which it said was the quickest way to end the bankruptcy proceedings but saw massive rejection from creditors. 

Meanwhile, reports noted that FTX sold nearly $1 billion worth of Grayscale’s Bitcoin ETF shares recently. The 22 million share sales took FTX’s GBTC share ownership down to zero amidst sustained selling pressure in Bitcoin since the ETFs went live on January 11.