Judge denies request for FTX bankruptcy examiner; FTX wants to recoup $400M investment in Modulo Capital
In the bankruptcy case involving FTX, a court rejected a plea to appoint an independent examiner, stating that it would be too expensive given the ongoing investigations into the troubled cryptocurrency exchange.
“I have no doubt that the appointment of an examiner would not be in the best interest of the creditors,” Judge John Dorsey said during a hearing on Wednesday morning. “Every dollar spent in these cases on administrative expenses is $1 less to the creditors.”
A judge denied a request to appoint an independent examiner in FTX’s bankruptcy case
The choice was made a few weeks after an impartial inspector published a roughly 700-page report on the insolvent cryptocurrency company Celsius.
The U.S. Trustee in charge of the bankruptcy had requested the court to appoint an examiner. According to the FTX debtors and others, an examiner would be too expensive for the bankruptcy estate and might present security risks.
Dorsey concurred with the critics and stated that FTX CEO John Ray is “totally independent of former management” and “well qualified” to resolve the company’s financial problems and restore value to creditors and clients. He also confirmed that, despite certain FTX personnel still working for the business, none had been charged with mismanaging the exchange or any subsidiary subsidiaries.
“There’s no indication they were involved in any wrongdoing, and according to Mr. Ray, they’ve been stripped of any decision-making authority,” Dorsey said.
The Justice Department and agencies like the Securities and Exchange Commission and the Commodities Futures Trading Commission are looking into FTX and some of its former leaders. Sam Bankman-Fried, a former CEO charged with a crime but pled not guilty, is scheduled to go on trial in October.
FTX Transferred $7.7B from Bahamian Estate to US Units Ahead of Bankruptcy Filing
Before filing for bankruptcy last year, FTX transferred $7.7 billion in assets from the crypto company’s Bahamian estate to its American counterparts, the Delaware bankruptcy court was informed at a Wednesday hearing.
According to court-appointed joint provisional liquidators in the Bahamas, $5.6 billion from the custodial accounts of the Bahamas-based FTX Digital unit were transferred to the United States-based FTX Trading, and another $2.1 billion was transferred to FTX’s American trading subsidiary Alameda Research.
“And then we have other tangible assets of about $3 million, mostly relating to office furniture, equipment and the fleet of cars that the employees had in the Bahamas,” Christopher Shore, a lawyer for the liquidator said during the hearing.
Early in January, FTX’s new management agreed to cooperate with Bahamas-based court-appointed liquidators to resolve differences and deal with the disputed assets.
“The cooperation agreement is a starting point. But the issues as to whether assets belong in the Bahamian estate or in the U.S. estate are open issues. And so the statements that Mr. Shore has made in that regard are statements that the U.S. Senators reserved all their rights on, and frankly, disagree with with many,” a representative for FTX said.
Judge John Dorsey, who presided over the case, rejected a request to appoint an independent examiner to investigate FTX’s financials, which FTX lawyers had previously claimed might cost the estate over $100 million.
FTX reportedly in talks to recoup $400M investment in Modulo Capital
According to the New York Times, FTX management, under the direction of John Ray III, is in negotiations with the owners of Modulo Capital to recover the $400 million that Sam Bankman-Fried placed in the hedge fund.
Xiaoyun Zhang and Duncan Rheingans-Yoo, two former Jane Street traders, founded the hedge fund Modulo Capital, which is domiciled in the Bahamas. Approximately 400 million dollars were purportedly invested by SBF just before his empire crumbled.
After FTX filed for bankruptcy in November 2022, sources close to the company told the New York Times that SBF’s investment in Modulo Capital was turned into cash and maintained in an interest-bearing account at JPMorgan.
Modulo Capital was listed as one of the companies to be investigated as part of the bankruptcy process for holding SBF’s interests.
The NYT reported on February 15 that the founders of Modulo Capital are purportedly in talks with FTX to repay the money and escape the legal repercussions of their connections to SBF.
FTX might be closer to raising the $8 billion required to pay off its creditors if the $400 million in Modulo Capital cash is fully recovered. Amounts kept in customer accounts across the bankrupt exchange totaling nearly $5.5 billion was discovered, according to information released by FTX lawyers on Jan. 17.
According to reports, FTX is attempting to recoup an extra $93 million from political contributions, $2.1 billion paid to Binance, $446 million transferred to Voyager Capital, and $2 billion borrowed from insiders.
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