The trustee for bankrupt crypto giant FTX Group filed a civil complaint last week against former FTX general counsel and chief compliance officer Daniel Friedberg, alleging he acted as a “fixer” who helped divert billions to FTX insiders, paid off whistleblowers and their lawyers, and collected a $3 million bonus and other rewards for his 22-months of service to FTX.
A redacted version of the complaint is posted on Kroll’s FTX docket as entry #1727.
Friedberg, an attorney licensed in Washington state, joined FTX Group in January 2020 as general counsel and chief compliance officer. He resigned on November 9, 2022.
Two days later, John J. Ray III took control of FTX from founder and CEO Sam Bankman-Fried and filed FTX’s federal bankruptcy petition in Delaware.
Friedberg hasn’t been charged with any crimes and is reportedly cooperating with the DOJ.
FTX’s trustee is suing Friedberg in the bankruptcy action for damages resulting from his “conscious, willful, wanton, and malicious conduct.” The complaint alleges “breaches of fiduciary duties, legal malpractice, and other wrongdoing.”
The lawsuit seeks disgorgement from Friedberg of all his compensation from FTX, punitive damages, attorney’s fees, and costs.
During his 22 months at FTX, Friedberg received “cryptocurrency worth tens of millions of dollars,” the complaint says. His compensation also included a signing bonus of $1.4 million, a regular salary of $300,000, and an award of 8 percent equity in FTX’s U.S. operation. The trustee also seeks to recover “any additional undocumented transfers Friedberg received.”
As general counsel and chief compliance officer, his duty was to ensure the FTX companies had appropriate internal controls, risk mitigation, and compliance, according to the complaint. It continues,
Friedberg breached those duties by knowingly failing to implement – and in fact obstructing the implementation – of virtually any of the systems or internal controls that would be necessary to properly run the FTX Group’s business and by directly contributing to the FTX Group’s lack of internal controls.
The complaint alleges that Friedberg enabled the raiding of FTX Group companies of “billions of dollars for his own benefit and the benefit of Bankman-Fried and the other FTX insiders.”
Friedberg and FTX insiders acted “under the cloak of [a] wide-ranging con game,” according to the complaint.
At least three times, Friedberg allegedly “whitewashed” whistleblower complaints about misuse and commingling of FTX Group’s assets. The trustee’s complaint says,
He not only settled the complaints for inflated amounts, in some instances he arranged for the FTX Group to retain the whistleblowers’ attorneys post-settlement, thereby buying or otherwise ensuring their silence.
In January 2023, Friedberg said in a declaration (docket entry #530) to the bankruptcy court that he only learned after November 7, 2022 — two days before he resigned — that $8 billion in FTX customer funds were missing. He said news of the “shocking development” came during a Zoom with FTX International’s general counsel.
“Prior to this disclosure, I had no idea of any customer deficit,” Friedberg said in the declaration.
FTX founder Bankman-Fried was arrested in the Bahamas in December 2022. He agreed to extradition to the United States a month later. A federal judge released him before trial on a $250 million recognizance bond.
He’s charged with fraud, money laundering conspiracy, and conspiracy to violate campaign finance laws.
The DOJ later added FCPA conspiracy and bank fraud counts. Those charges are on hold until the Bahamian government consents to them under its extradition treaty with the United States.
Bankman-Fried has pleaded not guilty to all charges.
So far, three former FTX officials have pleaded guilty in cooperation deals with the DOJ.
Carolyn Ellison, the former chief executive at FTX’s sister company Alameda Research, and Gary Wang, an FTX cofounder, pleaded guilty to wire fraud and conspiracies to commit wire fraud, commodities fraud, and securities fraud. Ellison also pleaded guilty to money laundering conspiracy.
FTX’s former engineering director Nishad Singh pleaded guilty to conspiracies for wire fraud, money laundering, and violating federal campaign finance laws.