The former chief compliance officer at cryptocurrency exchange FTX paid off whistleblowers and their lawyers trying to expose the company’s fraud, according to a lawsuit filed in bankruptcy court by FTX and its debtors.

Daniel Friedberg, a longtime outside counsel for FTX and its former Chief Executive Sam Bankman-Fried, was formally hired in January 2020, according to the complaint filed in U.S. Bankruptcy Court for the District of Delaware on Tuesday.

Friedberg, per the complaint, served as both CCO of the FTX US exchange and general counsel of Bankman-Fried’s crypto hedge fund Alameda Research, which Bankman-Fried allegedly used to comingle customer assets and ultimately collapse both businesses in November.

Friedberg advised Bankman-Fried, his inner circle, and FTX on legal and compliance matters but ignored a “glaring lack of internal controls” and served as a “fixer” tasked with paying off whistleblowers who threatened to expose the company, the complaint stated.

In November 2019, a whistleblower filed a complaint against FTX alleging the company “engaged in cryptocurrency price manipulation through pump-and-dump schemes, money laundering, operating an unlicensed money transmitter business, unfair business practices, and violations of the Commodity Exchange Act,” according to the complaint.

In January 2022, Friedberg allegedly orchestrated a way to pay the whistleblower’s attorney $1.6 million and $50,000 on a monthly basis. The period between November 2019 and January 2022 was redacted in the complaint.

In total, the attorney was set to be paid more than $3.3 million through July 2022 without providing legal service to FTX, the complaint stated.

In December 2021, a terminated FTX US employee filed a demand letter alleging, “‘Alameda [was] nothing more than an extension of FTX,’” with “‘details regarding company fundraising and various projects’” openly discussed on Slack channels that allowed employees to “‘make trades on the information prior to public announcements,’” the complaint stated.

In March 2022, the whistleblower received an “extraordinary settlement,” with the amount redacted from the complaint. In April 2022, Friedberg reached out to the whistleblower’s attorneys, eventually signing an agreement for “‘general client counseling’” at a $12 million commitment, per the complaint. The law firm would only produce one document for the company.

In December 2021, Friedberg allegedly paid off another whistleblower concerned about governance and regulatory issues at FTX. After meeting with Friedberg, the whistleblower was fired and offered a redacted severance package, despite only working for the company for less than three months, the complaint said.

In all three cases, Friedberg had a duty to investigate concerns by the whistleblowers and remediate any issues but instead bought their silence, the complaint alleged.

Other alleged misconduct included Friedberg drafting sham agreements and setting up shell companies to hide the comingling of assets between FTX and Alameda to auditors and banks, along with failing to implement effective oversight, internal controls, and checks.

The complaint seeks for Friedberg to pay compensatory damages and disgorge all compensation paid by FTX, among other requests.

Jeff Dale is Managing Editor, Editorial Projects and Analytics, at Compliance Week. He previously served as Compliance Week's Digital Editor and has worked as a copy editor at the Boston Herald and city editor at The Hour Publishing Co. in Norwalk, Conn.View full Profile

More from Jeff Dale

Topics