FTX implosion prompts request for independent probe of DOJ arm

(Bloomberg) – The US Justice Department’s bankruptcy watchdog is calling for an independent investigation into the collapse of FTX Group, saying a neutral party should investigate the fall of the cryptocurrency empire.

The US trustee, part of the Justice Department that oversees the bankruptcy court, asked FTX’s bankruptcy judge to appoint a screener in the company’s insolvency proceedings. The Examiner would issue a public report on the FTX implosion and examine allegations of wrongdoing.

“A reviewer could — and should — investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct and mismanagement” by FTX, attorneys for the U.S. trustee said in court papers Thursday. The reviewer must also probe “the circumstances surrounding the debtors’ collapse, the apparent conversion of the exchange’s client assets, and whether there are any disguised claims and causes of action to remedy the losses.”

Examiners are sometimes appointed in large, litigious bankruptcies in the United States when a judge deems them necessary. After Lehman Brothers went bankrupt, for example, an examiner finally released a dense report explaining what went wrong. A reviewer also takes a look at the downfall of crypto lender Celsius Network LLC.

While the company’s new management has done “valuable preliminary work” to untangle FTX’s myriad issues, “the issues at play here are simply too broad and too important to be left to internal investigation,” they said. attorneys for the US fiduciary in court documents.

FTX representatives did not immediately respond to an email seeking comment.

The case is FTX Trading Ltd., 22-11068, US Bankruptcy Court for the District of Delaware.

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