FTX Trading, Ltd. v. Vara, No. 23-2297 (3d Cir. 2024)
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This case involves the bankruptcy of FTX Trading Ltd., a multibillion-dollar cryptocurrency company that suffered a severe financial collapse. The collapse triggered criminal investigations revealing fraud and embezzlement of customers' funds, leading to the conviction of Samuel Bankman-Fried, FTX's primary owner. Following the financial collapse, the United States Trustee requested the appointment of an examiner to investigate FTX's management as per 11 U.S.C. § 1104(c)(2). The Bankruptcy Court denied the motion, interpreting the appointment of an examiner as discretionary under the statute.
The United States Court of Appeals for the Third Circuit reversed the lower court's decision. The Appellate Court held that the appointment of an examiner under 11 U.S.C. § 1104(c)(2) is mandatory when requested by the U.S. Trustee or a party in interest, and if the debtor's total fixed, liquidated, unsecured debt exceeds $5 million. The Court based its decision on the plain text of the statute, ruling that the word "shall" in the statute creates an obligation impervious to judicial discretion. The Court also held that the phrase "as is appropriate" in Section 1104(c) refers to the nature of the investigation and not the appointment of the examiner. The case was remanded with instructions to order the appointment of an examiner.
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