First Brands Group will soon have an examiner appointed to investigate purported fraud that led to billions in missing funds as part of its bankruptcy. While such an appointment is not overly common in bankruptcy cases, we note recent examiner appointments in other Chapter 11 cases and discuss such appointments below.

The US Trustee overseeing First Brands’ case had hoped to appoint an examiner by next week, but today (20 November), he filed a notice on the docket indicating that timeline is no longer feasible. The US Trustee said he has received more than 50 nominations and recommendations of candidates, and expects to receive more.

Fraud claims similar to what is asserted in First Brands’ cases were investigated in FTX’s case. In addition to fraud claims being looked into as part of FTX’s Chapter 11 proceedings, examiners were also brought on over the years in the major bankruptcy cases of Spirit Aviation Holdings, Purdue Pharma, and Caesars Entertainment Operating Company. The following table identifies notable Chapter 11 cases in which examiners had been appointed.

Looking more broadly, the above chart highlights 28 cases that have had examiners appointed since 2005, according to prior coverage and Debtwire’s Restructuring Database.

For First Brands, Judge Christopher Lopez of the US Bankruptcy Court for the Southern District of Texas agreed to order the appointment of an examiner during a hearing on Tuesday (18 November). He entered the order directing the US Trustee to appoint one on Wednesday (19 November).

The US Trustee’s office and unsecured creditor Raistone Capital, a factoring provider and now unsecured creditors committee member, had filed motions seeking an examiner. Later, the major parties in the case agreed it was the right move and announced at the hearing on Tuesday that they had reached agreement on the scope of an investigation and a budget that would be capped at USD 7m.

First Brands has accused its founder and former CEO, Patrick James, of misappropriating hundreds of millions and potentially billions of dollars from the company, leading to its bankruptcy filing. In the complaint, unsealed on 3 November, First Brands accuses James of using non-existent invoices to secure at least USD 2.3bn in accounts receivable factoring and then taking on another USD 2.3bn in debt by double pledging collateral for financing using special purpose vehicles.

The examiner’s scope will include looking into:

• third-party factoring transactions that included fraudulent or inaccurate invoices or accounts receivable factored more than once;
• transactions between debtors, insiders, or third parties concerning factoring transactions and the following proceeds; and
• the facts and circumstances concerning off-balance sheet financing transactions.

Another case that included fraudulent allegations that received an examiner appointment was cryptocurrency exchange FTX Trading. Like with First Brands, FTX’s founder, Sam Bankman-Fried, and others involved in the company were accused of widespread fraud that led to the company’s collapse into bankruptcy. New management took over, led by CEO John Ray III, on the eve of its November 2022 bankruptcy filing. Ray hammered former management at every turn, highlighting a “pervasive lack of records” and other evidence for assets, suing Bankman-Fried and other former insiders for misappropriating funds for “pet projects,” filing a complaint against former Chief Compliance Officer Daniel Friedberg for breach of fiduciary duty and legal malpractice, and issuing a report that alleged the company “misused [customer funds] with abandon.” In March 2024, Bankman-Fried was sentenced to 25 years in prison and ordered to pay USD 11bn in forfeiture for his orchestration of multiple fraudulent schemes.

In FTX’s case, Robert Cleary served in the examiner role. In reporting Cleary published in 2024, he urged a further look into FTX.US because it was “a matter of significant public interest that has not yet been thoroughly explored by the investigations to date.” His reports also detailed findings on whether certain law firms may or may not have been involved in fraudulent activities.

More recently, just last month the US Trustee’s office appointed an examiner in Spirit Aviation Holdings’ case – Coda Advisory Group’s Marc Heimowitz. The company’s bankruptcy judge entered an order directing the appointment of an examiner to investigate the events leading to Spirit’s second Chapter 11 filing, which came roughly five months after its prior emergence.

The order capped the examiner’s budget at USD 1.25m – considerably smaller than First Brands’ budget – and requires completion of the investigation within 45 days of the appointment approval, unless extended for good cause.

Back in 2021, Oxycontin maker Purdue Pharma’s bankruptcy judge found that an examiner motion, filed by the father of a victim of an accidental opioid overdose, contained allegations so unfounded, without evidence, that so “tainted” the case and slandered its professionals that he felt he had to appoint an examiner in a limited scope to conduct an investigation. The examiner’s investigation focused on whether Purdue’s special committee was influenced by the Sackler family, Purdue’s founders, when the company entered a framework to settle billions of dollars in opioid claims.

The US Trustee selected Stephen Lerner, of Squire Patton Boggs, to serve as the examiner for Purdue’s case. Ultimately, the examiner backed the debtors’ proposed plan, finding no fault with the company’s shareholder settlement. (Notably, that prior version of the plan was rejected by the US Supreme Court on appeal in June 2024, and Purdue just earlier this week received confirmation of an updated version of the plan that it hopes will go effective by March 2026).

Going back further, to 2015, there was an independent examiner appointed in Caesars Entertainment’s Chapter 11 case. While the debtors wanted a limited scope in that situation, their judge approved a broader investigation that was more in line with a second lien committee’s request.

Ultimately, in 2016, Caesars’ examiner, Richard Davis, published a report finding that claims arising from prepetition transactions directed by Apollo Global Management and TPG Capital could result in damages of up to USD 5.1bn.

For First Brands’ case, it remains to be seen who will be chosen to serve as the examiner, but the US Trustee said he will file a status report on 1 December updating the bankruptcy court on his progress.

Related links (Access Required):

First Brands’ examiner appointment order
Debtwire Dockets: First Brands Group
Debtwire Restructuring Database: First Brands Group
Debtwire Dockets: FTX Trading
Debtwire Dockets: Spirit Aviation Holdings
Debtwire Dockets: Purdue Pharma
Debtwire Dockets: Caesars Entertainment Operating Company