Speculator crash of crypto exchange FTX sees bankruptcy watchdog at the US Department of Justice called for ‘independent investigation’
The fallout from the spectacular collapse of the FTX cryptocurrency exchange last month continues, as the US bankruptcy watchdog called for an investigation.
The US Department of Justice’s bankruptcy watchdog on Thursday called for an independent investigation into the collapse of FTX, Reuters reported.
The repercussions of the FTX collapse are still being felt. Earlier this week cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection, saying it had been hurt by exposure to the FTX collapse.
FTX’s collapse also triggered a further crash of crypto prices as well.
For example the price of Bitcoin, the most popular digital currency by far, is down more than 70 percent from a 2021 peak.
Now the DoJ’s bankruptcy watchdog said on Thursday that customers need a neutral party to investigate allegations of “fraud, dishonesty, incompetence, misconduct, and mismanagement.”
Upon filing for Chapter 11, FTX ousted founder Sam Bankman-Fried, and new CEO John Ray, who was hired to steer the company through bankruptcy, has said investigating FTX’s implosion and recovering customer assets are among his top priorities.
The DoJ’s Office of the US Trustee said in a filing in Delaware bankruptcy court that it did not question Ray’s competence or earnestness, but an independent investigation would carry more weight with FTX customers and allow Ray to devote more energy to stabilising FTX’s operations.
FTX did not immediately respond to a request for comment, Reuters reported.
“The questions at stake here are simply too large and too important to be left to an internal investigation,” US Trustee Andrew Vara wrote in court papers.
A neutral examiner would also provide more public and transparent findings than an internal review, the US Trustee wrote, which is “especially important because of the wider implications that FTX’s collapse may have for the crypto industry,” Vara added.
New CEO John Ray has lambasted the corporate management of FTX.
He said the lapses in oversight, security and corporate governance he identified were greater than in any other process he has managed in his 40 years as a bankruptcy specialist.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray wrote in a filing with the Delaware bankruptcy court.
“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented,” he wrote in a filing.
Ray is an experienced operator, having overseen some of the biggest bankruptcies in corporate history, including the collapse of the energy giant Enron.
FTX filed for bankruptcy in November after a week in which a possible merger with rival crypto exchange Binance failed to materialise.
Reuters reported that FTX founder Sam Bankman-Fried is faced with allegations he had funneled customer deposits to FTX’s affiliated trading firm Alameda Research, and the exchange experienced withdrawals of about $6 billion in just 72 hours.
Bankman-Fried has said he is “deeply sorry about what happened” and acknowledged a “massive failure of oversight of risk management,” but said he did not intentionally commingle FTX’s user deposits with Alameda’s trading activity.