In a sudden twist to a complex regulatory saga, major cryptocurrency exchange FTX has filed a lawsuit against its former regulatory and compliance executive Daniel Friedberg.
FTX accuses Friedberg of an illicit series of payments designed to silence whistleblowers from exposing the exchange’s regulatory problems and allegedly inappropriate ties to Alameda Research.
Allegations of “hush money” and breach of duties
Daniel Friedberg, who served as FTX’s chief regulatory officer, the chief compliance officer of FTX.US, and general counsel at Alameda Research, allegedly distributed “hush money” to two potential whistleblowers. This controversial act was purportedly a bid to prevent any information leak about the exchange’s regulatory issues and the compromising connection between FTX and Alameda.
FTX’s 40-page lawsuit accuses Friedberg of retaining a whistleblower’s attorney, allegedly to buy off the lawyer and their firm, ensuring their continued silence. The lawsuit unfolds an extensive series of allegations against Friedberg, who, apart from breaching his legal duties, is charged with approving fraudulent transfers and questionable “loans” to other former FTX executives.
Over his 22-month tenure at the exchange, Friedberg reportedly received a $300,000 salary, a signing bonus of $1.4 million, an additional $3 million cash bonus. He also received 8% equity in FTX.US, and cryptocurrency worth tens of millions. The crypto exchange is now pursuing a clawback of this extensive compensation, placing further pressure on the former executive.
A whistleblower and a hefty settlement
FTX’s lawsuit discloses an alleged incident in March 2022, where Friedberg awarded an “extraordinary settlement” to a short-term female employee referred as “Whistleblower-1”. Despite serving less than two months at the U.S-based exchange, the whistleblower, who received a $200,000 salary, obtained a remarkable settlement under Friedberg.
FTX also claims that Friedberg initiated a $12 million deal to secure the attorney of Whistleblower-1 following the settlement. In a letter to FTX in December 2021 Whistleblower-1 said that;
“Alameda [was] nothing more than an extension of FTX, used to bolster investor confidence in FTX projects, and in turn drive up the prices of projects FTX had developed or invested in itself.”
If true, this activity would constitute a form of market manipulation. The settlement to Whistleblower-1 and the subsequent retention of her legal team is alleged to be a cover-up of this activity.
FTX’s abrupt pause on stake sale
Adding to the complexities of the unfolding scenario, FTX has suddenly stopped selling one of its assets – a stake in artificial intelligence startup, Anthropic. According to unnamed sources, Perella Weinberg Partners, the boutique investment bank advising FTX, informed the bidders about the pause earlier this month.
The tale of FTX, Friedberg, and the alleged hush money to whistleblowers is a stark reminder of the need for transparency and good governance in the rapidly evolving crypto industry. As this lawsuit progresses, the true extent of the connections and alleged malfeasance will likely become more apparent.