FTX lawyers filed a legal complaint against a former compliance employee who paid ‘hush money’ to would-be-whistleblowers who threatened to expose the insider racket that was FTX.
Once helmed by legally embattled fraudster Sam Bankman-Fried, FTX lawyers are suing the former compliance officer, Daniel Friedberg, who served as a ‘fixer’, per the allegations in the lawsuit.
According to the complaint, in the 22 months of his employ, Friedberg actively helped divert misappropriated FTX funds for the benefit of insiders. He did this by creating shell companies and drafting phony intercompany agreements.
The FTX lawyers also allege that Friedberg whitewashed complaints of several whistleblowers, one of which was filed in November 2019. Friedberg bought out the plaintiff’s attorneys’ silence by paying them a reported $3.3 million.
In another damning instance, in December 2021, lawyers found that bought out a would-be-whistleblowers by paying her “exorbitant hush money” when she found out that the exchange had engaged in various forms of market manipulation. A third person was allegedly bought off that same month after raising concerns about the firm’s disbursement of funds to customers without the appropriate licence.
In total, the former employee faces 11 charges, including legal malpractice, breach of fiduciary duty, corporate waste and several counts of fraudulent transfers, per the legal complaint filed on Tuesday.
“Friedberg had a duty to place the interests of Alameda, FTX…above the interests of himself and the other FTX insiders who were indiscriminately siphoning funds from those entities,” FTX lawyers said in the complaint.
They added, “Friedberg breached that duty by enabling the raiding of these entities of billions of dollars for his own benefit and the benefit of Bankman-Fried and the other FTX insiders.”
From 2017 until the firms’ extraordinary implosion in November 2022, Friedberg functioned as both the chief compliance officer for FTX’s US subsidiary and the general attorney for its sister company Alameda Research.
The funds FTX executives paid to keep insiders quiet is redacted in the lawsuit.
The company’s lawyers are looking to reclaim payments with interest on Friedberg’s $300,000 salary paid by FTX.US and Alameda, in addition to a $1.4 million signing bonus and equity stake in the US-arm of FTX.
The lawsuit also raises questions as to who else was potentially paid off to cover up seemingly endless executive malpractice.
The complaint comes at a time when talk of an ‘FTX reboot’ fills the airwaves. In fact, the exchange’s new CEO, John Ray, who has recovered some funds via clawbacks and increasing crypto prices, views a reboot as the best possible way of ensuring that creditors get the best outcome in terms of being repaid.
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