Court Orders Independent Investigation into FTX Collapse

A federal appeals court ruled Friday that cryptocurrency exchange FTX must face an independent investigation by a court-appointed examiner, overturning an earlier bankruptcy court decision.

The ruling from the Third Circuit Court of Appeals in Philadelphia remands the matter back to the Delaware bankruptcy court overseeing FTX’s Chapter 11 case.

Key details:

• The Appeals Court orders an independent probe into the FTX collapse.
• Overrules a bankruptcy judge who denied appointing an examiner.
• Cites need to study industry practices exposed by the crypto blowup.

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Judges say investigation by current FTX CEO is insufficient

Judges found the current investigation led by FTX chief executive John Ray III insufficient without external scrutiny from an examiner with no ties to the failed firm.

Authored by Circuit Judge Luis Felipe Restrepo, the precedential decision underscores the need for transparency into crypto business practices highlighted by FTX’s epic collapse.

An independent FTX investigation could bring certain opaque activities, like using native exchange tokens to amplify trading volumes, under closer examination. “Thereby alerting potential investors to undisclosed credit risks in other cryptocurrency companies,” Restrepo wrote.

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The ruling also cites worries over the potential involvement of fraudulent insiders remaining at the exchange despite last year’s meltdown. Circuit judges worry that the current counsel for FTX Group previously represented the firm before its bankruptcy as well. The opinion orders the appointment of an outside, disinterested examiner empowered to fully investigate FTX without obstacles.