FTX Judge Declines to Tap Bankruptcy Examiner to Probe Collapse

An outside investigation of the collapse of FTX Group would likely cost creditors more than $100 million and interfere with the company’s effort to repay its debts, a federal judge said Wednesday in refusing to appoint a bankruptcy examiner to probe the collapse of the crypto exchange.

US Bankruptcy Judge John Dorsey rejected a request from the US Trustee, the federal watchdog that monitors corporate bankruptcies, to appoint the examiner. The US Trustee had argued that an outside investigation is necessary for the public to get a comprehensive view of the firm’s downfall.

“Every dollar spent on administrative expenses is an expense borne by the creditors,” Dorsey said in a hearing Wednesday. “I have no doubt it would not be in the interest of creditors.”

During a hearing earlier this month, John J. Ray, FTX’s current chief executive officer, testified that examiners have cost creditors other bankruptcy cases tens of millions of dollars.

Bankruptcy examiners are often appointed in big, multi-billion dollar cases, especially when the actions of current managers may need to be probed. Examiner reports typically lay out possible lawsuits that creditors could bring in order to collect more money.

Dorsey said he based part of his decision on the fact that Ray and the team of advisers who report to him are outsiders who were not involved in FTX until the bankruptcy case.

The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.