FTX Accuses Former Executive of Utilizing ‘Hush Money’ to Silence Whistleblowers

Crypto exchange FTX has taken legal action against Daniel Friedberg, a former regulatory and compliance executive at the company, alleging that he made a series of payments in an attempt to prevent employees from disclosing issues within the exchange. The lawsuit, filed on June 27, outlines Friedberg’s roles at FTX, including chief regulatory officer, chief compliance officer of FTX US, and general counsel at Alameda Research.

According to FTX, Friedberg acted as a “fixer” for Sam Bankman-Fried, the co-founder of FTX, with Bankman-Fried’s father advocating for Friedberg to have a significant role within the company. FTX claims that Friedberg made “hush money” payments to two potential whistleblowers, aiming to keep them from leaking information about regulatory concerns and the alleged close connections between FTX and Alameda.

The lawsuit alleges that Friedberg retained the attorney of one whistleblower after making a payment, effectively ensuring their silence. In a 40-page filing, FTX has presented 11 civil charges against Friedberg, including breaches of legal duties and approval of fraudulent transfers and “loans” to other former FTX executives.

During his 22-month tenure at FTX, Friedberg received substantial compensation, including a $300,000 salary, a $1.4 million signing bonus, a separate $3 million cash bonus, an 8% equity stake in FTX US, and cryptocurrency holdings valued in the tens of millions. FTX is seeking to recover these assets.

Certain details in the complaint, such as the amounts paid to the whistleblowers, have been redacted. One incident mentioned in the lawsuit involves a settlement of significant value given to a female FTX US employee, referred to as “Whistleblower-1,” who had worked for less than two months at the exchange. FTX also claims that Friedberg orchestrated a $12 million deal to retain the attorney of Whistleblower-1 following the settlement.

The lawsuit further alleges that the whistleblower had claimed that Alameda was merely an extension of FTX, used to boost investor confidence in FTX projects and drive up prices of projects developed or invested in by FTX. The former employee also alleged that details of company fundraising and various projects were disclosed openly on Slack, enabling employees to trade based on non-public information.

In another incident, Friedberg reportedly terminated an attorney at Alameda, referred to as “Whistleblower-2,” after expressing concerns about governance and regulatory issues within the company. The attorney received a severance package, the details of which were redacted in the filing.

Recent reports indicate that Friedberg may have been involved in facilitating and concealing the mingling of customer funds, as stated in a report by FTX restructuring chief John Ray. The Wall Street Journal also cited sources suggesting that Friedberg was the unnamed attorney mentioned in the report. Friedberg has also provided information to investigators at the U.S. Attorney’s office, and his involvement has been cited in a class-action lawsuit against celebrities accused of promoting FTX.

At the time of writing, Friedberg could not be reached for comment regarding the allegations made by FTX.

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