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FTX Files Lawsuit Against Ex-Compliance Chief Dan Friedberg

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FTX, a bankrupt crypto exchange, has filed a lawsuit against its former chief compliance/regulatory officer, Dan Friedberg, after his alleged conflicts of interest involving Sullivan & Cromwell (S&C) and Ryne Miller, FTX’s ex-U.S. General Counsel. Friedberg claimed S&C exploited Chapter 11 insolvency proceedings to secure high service fees from FTX, leading to over $40 million in charges since November 2022:

“Friedberg advised Bankman-Fried, his trusted inner circle, and the FTX Group on legal and compliance matters and significant transactions, ignored the FTX Group’s glaring lack of internal controls, and served as a “fixer” tasked with, among other things, paying off whistleblowers who threatened to expose the true fraudulent nature of the FTX Group enterprise.”

The lawsuit, in turn, brings serious allegations against Friedberg. It states Friedberg was hired under Sam Bankman-Fried — the former CEO and infamous founder of FTX — father’s insistence, who believed the company needed a dedicated overseer, or “someone to be on top of everything.” His compensation included a $300,000 annual salary, a $1.4 million signing bonus, an 8% stake in FTX U.S. and additional perks, including a $3 million bonus in 2021 and $30 million worth of Serum tokens.

The lawsuit also alleges Friedberg’s involvement in setting up multiple shell companies for FTX to open accounts, one of which had a false website selling electronic goods with no links to FTX or Alameda. It also accuses Friedberg of making hush-money payments to silence potential legal threats:

“Many U.S. banks were reluctant to do business with cryptocurrency companies […] Friedberg solved this problem by creating shell entities that concealed the involvement of FTX.”

When questions were raised about governance and regulatory matters, Friedberg allegedly offered severance packages rather than conducting proper investigations. The lawsuit further implicates him in preparing substantial loan agreements to FTX’s founders, amounting to over $2 billion, which remain unpaid.

FTX filed for Chapter 11 bankruptcy on November 11, 2022, followed by SBF stepping down as CEO. Now, John Ray III, the exchange’s new CEO, is leading the bankruptcy proceedings. Ray started with a public internal audit last month to further “our stated objective of transparency.” The audit revealed that FTX owes its customers around $7 billion in liquid assets.

This lawsuit against Friedberg is just the next step to offer some solace to FTX creditors.

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FTX sues ex-compliance officer Daniel Friedberg

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Current leadership for FTX sued the company’s former compliance officer, Daniel Friedberg, as seen in a court filing dated June 27.

Friedberg allegedly breached duties

The filing broadly alleges that Friedberg breached his fiduciary duties and engaged in misconduct. Friedberg previously served as Chief Compliance Officer at FTX, General Counsel at Alameda Research, and in other internal and external positions.

Critically, FTX alleged that Friedberg caused the waste of company assets and helped former FTX CEO Sam Bankman-Fried and other executives divert funds.

FTX specifically said that Friedberg created an entity called North Dimension to commingle and misappropriate funds. It also alleged that, when a planned IPO required an audit, Friedberg created a “sham” intercompany agreement to hide transfers.

Furthermore, Friedberg was accused of “whitewashing” or covering up whistleblower complaints that concerned the company’s misuse and commingling of funds. Friedberg allegedly fired and paid off one whistleblower with a severance package.

Plus, Friedberg also helped carry out billions of dollars of transfers to FTX executives and portrayed those transfers as company loans. In fact, the supposed loans were not repaid and could not have been repaid, according to the filing.

In one section, FTX alleged that the early company was “insolvent at all relevant times” and was “built on a house of cards” from the time of its creation. FTX asserted that Friedberg supported a scheme that defrauded and hindered customers.

FTX seeks fines and damages

FTX, under its current management, now seeks various fines, damages, and disgorgements from Friedberg. It has also asked for certain property to be returned with interest. The relevant amounts will be determined in a future trial.

FTX filed the charges as part of the firm’s ongoing bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Delaware.

Other recent reports suggest that FTX is attempting to restart operations under its current leadership. The company owes its users $8.7 billion — the majority of which has been recovered despite being missing or misappropriated in the past.

The post FTX sues ex-compliance officer Daniel Friedberg appeared first on CryptoSlate.

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