On Monday, a court hearing is scheduled in Delaware in which a US bankruptcy judge will consider whether to give approval to an investigation into the downfall of FTX supervised by the court, or not.
It is a course of action that has been declared wasteful and redundant by the crypto exchange itself but has been demanded by numerous state regulators.
The request
US Bankruptcy Judge John Dorsey is presiding over the Chapter 11 bankruptcy case of the FTX crypto exchange.
The bankruptcy watchdog of the US Department of Justice (DOJ) asked the judge to select an independent examiner for investigating the allegations that have been made about FTX>
The said allegations include mismanagement, misconduct, incompetence, dishonesty and fraud and the watchdog said that they were too important to be determined via an internal investigation.
FTX has countered that hiring an independent examiner would mean duplicating the work that they are already doing, which includes the efforts of the company, law enforcement agencies and also its creditors.
The company accepted that its past conduct had been questionable, especially where mismanagement and fraud are concerned, but argued that hiring an independent examiner would only increase the cost.
Plus, it would also delay the efforts of the company in repaying its customers as part of the bankruptcy process.
The disaster
Known as one of the leading crypto exchanges in the market once upon a time, FTX imploded rather spectacularly in November when it filed for Chapter 11 bankruptcy.
The entire market was shaken up because there were 9 million investors and customers who were facing losses worth billions of dollars due to the bankruptcy.
Charges of fraud and money laundering, amongst others, have been filed against the co-founder of FTX, Sam Bankman-Fried and has chosen to plead not guilty to them.
He has also been accused of stealing funds from FTX for funding his trading desk, Alameda Research, which he had also launched. He will now face trial in October.
A number of top executives, including Caroline Ellison, the CEO of Alameda Research, have pled guilty to fraud charges.
The opposition
The new CEO of FTX is John Ray, who had overseen the bankruptcy of Residential Capital and Enron, and had worked with court-appointed examiners during the process.
Court filings show that the CEO claimed hiring independent examiners had cost the two companies around $150 million and had not offered a lot of benefits to creditors in the long run.
The official creditors committee of FTX is also of a similar view and is against the appointment of an independent examiner.
But, state regulatory bodies in Wisconsin, Vermont, Texas, and others have favored the bid of the Justice Department, stating that both customers and creditors would benefit from a neutral report.
An independent examiner had been hired in the case of crypto lender Celsius Network, which also filed for bankruptcy last year.
The examiner recently presented evidence showing that Celsius had never been solvent and had misused the funds deposited by its customers, amongst other issues.