FTX is confronting its former compliance executive, Daniel Friedberg, in a legal dispute, asserting that he orchestrated a sequence of remunerations to avert employees from bringing to light the pressing issues within the crypto exchange.
A legal proceeding was initiated by FTX on June 27 against Friedberg, who has served in various capacities, including chief regulatory officer at FTX, chief compliance officer of FTX US, and general counsel at Alameda Research.
According to FTX, Friedberg was essentially a “problem solver” for co-founder Sam Bankman-Fried. Bankman-Fried’s father was instrumental in pushing for Friedberg’s significant involvement in the company, as mentioned in the lawsuit:
“Joe Bankman, father to Bankman-Fried, insisted that Friedberg be granted a key role, encouraging his son and others to keep Friedberg ‘engaged…so we have one person in control of everything.'”
Friedberg is accused of providing “silence money” to two possible whistleblowers to prevent them from revealing information about “regulatory concerns” and the speculated intimate connection between FTX and Alameda.
The lawsuit states that, in one instance, Friedberg secured the services of a whistleblower’s lawyer after compensating them, thus “purchasing or otherwise securing their silence.”
The complaint, which spans 40 pages, presents 11 civil charges against Friedberg, asserting, among other things, that he violated his legal responsibilities and sanctioned a sequence of dishonest transfers and “loans” to other former FTX executives.
The lawsuit highlights Friedberg’s 22-month tenure at the exchange, during which he received a $300,000 salary, a $1.4 million sign-on bonus, an additional $3 million cash bonus, an 8% stake in FTX US, and cryptocurrency “worth tens of millions,” all of which FTX intends to reclaim.
Some portions of the lawsuit, particularly those pertaining to the amounts paid to the whistleblowers, have been concealed.
According to the lawsuit, in an incident in March 2022, Friedberg accorded an “exceptional settlement” to a female employee of FTX US, referred to as “Whistleblower-1”, who worked for “less than two months” at the US-based exchange for a $200,000 salary.
FTX further claims that Friedberg initiated a $12 million deal to retain the attorney of Whistleblower-1 following the settlement.
The lawsuit alleges that Friedberg terminated the services of another lawyer, referred to as “Whistleblower-2” from Alameda, who had raised concerns about governance and regulatory practices within the company. Despite serving Alameda for less than three months, the person received a severance package, the details of which were not disclosed in the filing.
A report released on June 26 by FTX’s restructuring chief, John Ray, implicated an unidentified senior lawyer of “facilitating and covering up” the intermingling of customer funds.
In conjunction with this, The Wall Street Journal disclosed the unnamed attorney to be Daniel Friedberg, as informed by individuals privy to the matter.
Friedberg was also named as a source of information for investigators with the U.S. Attorney’s office. Moreover, a class-action lawsuit against celebrities who allegedly promoted FTX mentioned Friedberg as the provider of evidence that could potentially contradict the key defenses put forth by some of the defendants.
Attempts to reach Friedberg for comments were unsuccessful.