US Government’s Push for Independent Inquiry of Bankrupt Crypto Exchange FTX Referred to Appeals Court

The US Government’s push for an independent inquiry of the now-bankrupt crypto exchange FTX was referred to the U.S. Third Circuit Court of Appeals on Tuesday. The government’s push comes after a group of both Democratic and Republican Senators in January called for an inquiry into FTX’s bankruptcy, arguing that a “thorough, objective investigation of the activities that led to the collapse of FTX” was needed.

The Ruling

Delaware District Judge Colm F. Connolly ruled that the question of whether the case should be referred to the appeals court was not up to the judge to decide. This is true as long as the U.S. Trustee – a branch of the Department of Justice (DOJ) – has asked for it, and there is no “question of fact” involved, the ruling said. In this case, “the facts are not in dispute,” Judge Connolly further wrote, noting that “No one contests that the Trustee requested an examiner here […].”

“Accordingly, I have no choice but to grant the Trustee’s motion,” the judge added.

The Opposition

The call for an inquiry into the FTX collapse was made despite warnings from the new FTX management that such an investigation could cost the bankruptcy estate as much as $100 million in legal fees. It also comes despite the fact that bankruptcy judge John Dorsey in March declined to appoint an examiner for the inquiry on the grounds that it would be too expensive and time-consuming.

The Consequences

FTX filed for bankruptcy in November of 2022, and the exchange’s CEO, Sam Bankman-Fried, was arrested in December. The former exchange CEO could face over 100 years in prison if convicted on all charges against him. It is unclear what the consequences of an independent inquiry will be for the FTX bankruptcy estate and for Bankman-Fried.

The US Government’s push for an independent inquiry of the bankrupt crypto exchange FTX has been referred to the US Third Circuit Court of Appeals. This comes after a group of Senators called for an inquiry into FTX’s bankruptcy, despite opposition from FTX management and a previous ruling by a bankruptcy judge. The consequences of an independent inquiry are uncertain, but Bankman-Fried could face significant legal consequences if convicted on all charges against him.