The US federal appeals court has ordered the appointment of an independent bankruptcy examiner to investigate the collapse of FTX, the cryptocurrency exchange once headed by the convicted Sam Bankman-Fried.
This decision, reversing a prior ruling, followed the alleged misappropriation of a staggering $10 billion in customers' assets, bringing to light a case with profound implications for FTX's global investors and the volatile cryptocurrency industry.
According to a report by Reuters, the 3rd US Circuit Court of Appeals in Philadelphia justified this decision, explaining that the appointment of an independent examiner is mandatory under the US Bankruptcy Code. This step was attributed to the significant scale of FTX's case, alongside allegations of misappropriation of funds before thecollapse of the cryptocurrency exchange.
Navigating FTX's Bankruptcy Proceedings
Emphasizing Congress's intent, the court underscored the necessity to safeguard debtors and creditors in this case. FTX's Chapter 11 reorganization demands scrutiny, given the far-reaching implications of its collapse on the evolution and volatility of the cryptocurrency industry.
Judge Felipe Restrepo highlighted the significant losses FTX's investors suffered and the broader ramifications for the cryptocurrency sector. The events leading to the bankruptcy of the company have raised crucial questions about the resilience of the industry and the need for regulatory safeguards.
However, John Ray, the successor of Sam Bankman-Fried, and the committee of unsecured FTX creditors have reportedly opposed this move. They have cited duplication of efforts and high costs that would reduce the funds available for distribution.
Appeals Court Reverses Decision
The appeals court's decision marks a reversal of a ruling by US Bankruptcy Judge John Dorsey in February last year, which sided with FTX's argument that a probe could incur a substantial cost exceeding $100 million.
Following Bankman-Fried's conviction on seven counts of fraud and conspiracy, John Ray assumed the role of the Chief Executive Officer. The legal battle surrounding FTX's collapse adds a layer of complexity to Ray's involvement, considering his experience in managing Enron post-bankruptcy.
Bankman-Fried, now convicted, faces sentencing on March 28, with expectations of an appeal. Prosecutors allege that the FTX's Co-Founder looted billions from customers, contributing to the collapse of the exchange, in a bid to support his hedge fund, Alameda Research.
This article was written by Jared Kirui at www.financemagnates.com.
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