Crypto exchange FTX, founded by Sam Bankman-Fried, is suing former executive Daniel Friedberg for allegedly bribing whistleblowers.
Friedberg served as the Chief Regulatory Officer of FTX, the Chief Compliance Officer for FTX US and served on the General Counsel of Alameda Research.
FTX’s new CEO, John Ray III, took over to guide it through the bankruptcy process. Under Ray’s leadership, FTX now claims that Friedberg often “fixed” problems for Bankman-Fried — such as silencing at least two whistleblowers with hush money before they could broadcast FTX’s issues.
Those issues include regulatory issues and closer ties between FTX and Alameda Research than Bankman-Fried was willing to admit.
FTX wants Dan Friedberg’s salary and commitment
The lawsuit includes eleven civil counts, including breach of fiduciary duty and approval of fraudulent transfers and “loans” to FTX executives.
FTX is asking for Friedberg’s compensation during his time with the company, including digital assets worth tens of millions of dollars, his ownership stake in FTX US and $4.7 million in bonuses and salary. Friedberg reportedly received an 8% stake in FTX US, but may have had less when FTX filed for bankruptcy in November 2022.
As an example of the counts in the lawsuit, Bankman-Fried’s father, Joe Bankman, reportedly urged him to give Friedberg a major role in the company. The complaint alleges that Bankman reasoned that Friedberg could “keep informed” and “stay informed”.
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In addition, FTX is suing Friedberg for “channeling billions of dollars in alleged profits from the FTX Group to the FTX Insiders and their families, friends and other acquaintances through alleged personal ‘loans’, bonuses, ‘investments’ and other means.” of transfer, including the purchase of real estate and hundreds of millions of dollars in charitable and political contributions.”
The civil complaints include Friedberg hiring a former whistleblower law firm after paying the whistleblower. FTX reportedly paid the law firm $200,000 monthly for five years, despite almost never using its services.
Alameda Research allegedly fired the second whistleblower a few months after hiring them as attorneys. The whistleblower had raised concerns about regulatory violations and received severance pay.
Rotated state certificate
Law360 has reported that Friedberg has turned over the state’s evidence and is cooperating with investigators. Friedberg testified in sworn testimony: “I had no personal knowledge of the issues raised [FTX] was confronted until shortly before my resignation. I also told plaintiffs’ counsel that I wanted to cooperate and assist on behalf of the FTX clients.”
Friedberg has a tainted history, including serving as an attorney for UltimateBet, operated by Excapsa, which eventually became embroiled in an online poker cheating scandal. UltimateBet allowed the website’s employees to look at cards while playing and bet accordingly.
Reports also indicate that an unnamed “senior lawyer”, allegedly Friedberg, advised Bankman-Fried about embezzling user funds. FTX reportedly sent user funds to Alameda Research. FTX’s complaint includes accusing Friedberg of spearheading the creation of Alameda Research subsidiaries North Wireless Dimensions and North Dimensions.
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Other legal complaints say Friedberg conspired to lie to banks and auditors, falsify documents and make FTX jump from jurisdiction to jurisdiction to get ahead of regulators.
After the bankruptcy, the FBI opened a fraud investigation into the former Bankman-Fried business empire. Friedberg offered to participate in the research.
FTX is still working on recovering cash. A recent report from FTX and its debtors indicates it has raised $7 billion in assets with nearly $2 billion to go.
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