A motion for the appointment of an independent examiner in the bankruptcy case of crypto exchange FTX has been referred to the appellate court by a US district judge.
In a filing on May 30, Judge Colm Connolly of the US District Court for the District of Delaware stated that the US trustee, Andrew Vara, had requested an appeal after the bankruptcy court denied a motion in February to appoint an examiner for overseeing the failed exchange. The appointment of an independent examiner is allowed under bankruptcy laws, but not mandatory.
The question of whether the law mandates the appointment of an examiner when the debtor’s debts exceed $5 million is a matter of legal interpretation, according to Connolly. As the bankruptcy court’s decision was based on its answer to that question, Connolly deemed it necessary to certify the order for an appeal to the Third Circuit.
Lawyers representing FTX debtors have argued that appointing an examiner would be costly and provide no benefit to creditors. However, the US Justice Department, represented by Vara, and several lawmakers have urged the court to appoint an examiner to avoid potential conflicts of interest.
The initial motion was denied by Bankruptcy Judge John Dorsey in February, prompting the US trustee to file an appeal in March. The case is now expected to proceed to the US Court of Appeals for the Third Circuit.
FTX filed for Chapter 11 bankruptcy protection in November 2022, while the criminal case against former CEO Sam Bankman-Fried continues to progress. Bankman-Fried is currently under house arrest in California and is set to go on trial in October.
