FTX has recently filed a lawsuit against one of its former regulatory and compliance executives, Daniel Friedberg.
The lawsuit alleges that Friedberg engaged in a series of payments aimed at silencing potential whistleblowers who were aware of the exchange’s internal issues.
On June 27, FTX initiated legal proceedings against Friedberg, who held several key positions within the organization, including chief regulatory officer at FTX, chief compliance officer of FTX US, and general counsel at Alameda Research.
According to the complaint, FTX claims that Friedberg acted as a “fixer” for Sam Bankman-Fried, the co-founder of the exchange. The lawsuit reveals that Joe Bankman, Bankman-Fried’s father, encouraged Friedberg to play a central role within the company and to be kept informed of all activities.
Friedberg allegedly resorted to making “hush money” payments to two potential whistleblowers in an attempt to prevent them from disclosing information about regulatory matters and the alleged close relationship between FTX and Alameda.
The lawsuit states that in one particular incident, Friedberg engaged the services of a whistleblower’s attorney after making a payment to them, effectively ensuring their silence.
In a comprehensive 40-page filing, FTX has leveled 11 civil charges against Friedberg, including claims of breaching legal obligations and approving fraudulent transfers and “loans” to other former executives at FTX.
The lawsuit also reveals the substantial compensation Friedberg received during his 22-month tenure at FTX, which includes a $300,000 salary, a signing bonus of $1.4 million, a separate $3 million cash bonus, an 8% equity stake in FTX US, and crypto assets valued at tens of millions of dollars. FTX is now seeking to recover these amounts.
Certain portions of the complaint, such as details regarding the payments made to the whistleblowers, have been redacted.
One incident highlighted in the lawsuit occurred in March 2022 when Friedberg agreed to an “extraordinary settlement” with a female employee of FTX US, referred to as “Whistleblower-1.” The settlement followed a demand letter from Whistleblower-1, which claimed that Alameda was essentially an extension of FTX used to manipulate investor confidence and increase the prices of FTX projects. The suit alleges that details about company fundraising and projects were openly disclosed on Slack, allowing employees to make trades based on non-public information.
Friedberg purportedly engaged the services of Whistleblower-1’s attorney after reaching the settlement, entering into an agreement that resulted in the law firm receiving over $200,000 per month for five years. The lawsuit contends that there was no genuine need for these services.
Another incident mentioned in the complaint involves the termination of an attorney, known as “Whistleblower-2,” who worked for Alameda. FTX claims that Whistleblower-2 expressed concerns about governance and regulatory issues within the company. Although their tenure was less than three months, they received a severance package, the details of which were redacted in the filing.
On June 26, John Ray, FTX’s restructuring chief, released a report implicating an unnamed senior attorney who allegedly facilitated and concealed the commingling of customer funds. The Wall Street Journal later reported that the unidentified attorney was Daniel Friedberg, citing individuals familiar with the matter.
Furthermore, Friedberg was mentioned as someone who provided information to investigators from the U.S. Attorney’s office. Additionally, in a separate class action lawsuit targeting celebrities accused of promoting FTX, Friedberg’s evidence is said to challenge key defenses put forth by some of the defendants.
