FTX bankruptcy judge rejects call for new investigation into crypto exchange’s collapse

A US bankruptcy judge on Wednesday denied calls for a new, independent investigation into the collapse of crypto exchange FTX, saying that the proposed investigation would be redundant to other investigations being carried out by FTX’s new management and law enforcement.

Judge John Dorsey in Wilmington, Delaware, rejected a request by the US Department of Justice’s bankruptcy watchdog, which argued that an independent examiner must be appointed to investigate allegations of “fraud, dishonesty, incompetence, misconduct, and mismanagement” that are “too important to be left to an internal investigation.”

FTX and the committeee representing its junior creditors opposed that demand, saying that the proposed examiner would merely duplicate work already being done by FTX, its creditors, and law enforcement agencies. The proposed examination would also drain millions of dollars from FTX’s limited funds, the company argued.

FTX, once among the world’s top crypto exchanges, shook the sector in November by filing for bankruptcy, leaving an estimated 9 million customers and investors facing billions of dollars in losses.

FTX’s founder Sam Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his Alameda Research hedge fund, has pleaded not guilty to fraud charges.

He is scheduled to face trial in October. Several former top executives, including Alameda Research CEO Caroline Ellison, have pleaded guilty to fraud.

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PE/VC firms suedVenture capital and private equity firms including Sequoia Capital, Thoma Bravo and Paradigm were accused in a lawsuit on Tuesday for promoting the legitimacy of FTX.

The class-action suit filed on behalf of investors alleges that the firms participated in a promotional marketing campaign in 2021 to tout their own investments of hundreds of millions of dollars in FTX entities. That added an “air of legitimacy” to the enterprise that went bankrupt.

Venture capital firms have faced criticism for plowing huge sums into FTX at towering prices. The company was valued at more than $32 billion last year, making it briefly one of the most valuable startups in the country.

Sequoia in particular attracted criticism for its support of FTX. The firm, one of the most prestigious in Silicon Valley, famously backed Bankman-Fried even though he was playing video games during meetings with investors.

It also commissioned a 14,000-word profile about the entrepreneur titled “Sam Bankman-Fried Has a Savior Complex — And Maybe You Should Too” that was widely mocked after the company imploded.

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