Cryptocurrency exchange FTX has taken legal action against its former regulatory and compliance executive, Daniel Friedberg, accusing him of making illicit payments to prevent employees from exposing the exchange’s problems.
FTX filed the lawsuit on June 27, highlighting Friedberg’s various roles within the organization, including chief regulatory officer, chief compliance officer of FTX US, and general counsel at Alameda Research.
According to FTX, Friedberg acted as a “fixer” for Sam Bankman-Fried, co-founder of the exchange, at the urging of Bankman-Fried’s father.
Allegedly, Friedberg made “hush money” payments to two potential whistleblowers in an attempt to silence them about regulatory issues and the alleged close relationship between FTX and Alameda.
The lawsuit claims that Friedberg even hired the attorney of one of the whistleblowers after making a payment to ensure their silence.
FTX’s 40-page complaint outlines 11 civil charges against Friedberg, including breaching his legal duties, authorizing fraudulent transfers, and approving questionable loans to former FTX executives.
During his 22-month tenure at FTX, Friedberg reportedly received 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 cryptocurrencies valued at tens of millions of dollars. FTX aims to recover these assets through the lawsuit.
Certain details, such as the specific amounts paid to the whistleblowers, are redacted in the complaint.
However, it does reveal an incident in March 2022 where Friedberg reached an “extraordinary settlement” with a female FTX US employee known as “Whistleblower-1,” who had worked at the exchange for less than two months.
The settlement reportedly included a $12 million deal to retain Whistleblower-1’s attorney.
Whistleblower-1 claimed that Alameda was merely an extension of FTX, used to boost investor confidence and manipulate project prices.
They also alleged that sensitive company information was freely shared on Slack, allowing employees to make trades based on non-public announcements.
The lawsuit further alleges that Friedberg terminated another attorney, referred to as “Whistleblower-2,” at Alameda after they raised concerns about governance and regulatory issues within the business.
Although their severance package is redacted in the filing, FTX claims they had been with Alameda for less than three months.
Previous reports by FTX’s restructuring chief implicated an unnamed senior attorney in facilitating and concealing the mingling of customer funds.
The Wall Street Journal later identified Daniel Friedberg as the anonymous attorney, citing insider sources.
Friedberg was also mentioned as someone who provided information to investigators from the U.S. Attorney’s office.
In addition to the lawsuit against Friedberg, FTX is facing a class action lawsuit involving celebrities accused of promoting the exchange.
Interestingly, Friedberg allegedly provided evidence that challenges certain defenses put forth by the defendants in that case.
Friedberg could not be reached for immediate comment regarding these allegations.
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