Lawyers representing FTX, the crypto exchange that recently filed for bankruptcy under the guidance of Sam Bankman-Fried, are taking legal action against the company’s former compliance officer, Daniel Friedberg. The lawsuit alleges that Friedberg engaged in questionable practices, including paying off insiders who had knowledge of the exchange’s purported criminal activities.
The complaint, which was filed on Tuesday, accuses Friedberg of acting as a “fixer” within the company. It claims that he made substantial payments, referred to as “exorbitant hush money,” to potential whistleblowers who threatened to expose the alleged misappropriation of user funds by FTX executives. The lawsuit levies a total of 11 charges against Friedberg, including legal malpractice, breach of fiduciary duty, corporate waste, and multiple counts of fraudulent transfers.
According to FTX lawyers, Friedberg had a duty to prioritize the interests of Alameda and FTX above his own and the other FTX insiders. However, they argue that he breached this duty by enabling the diversion of billions of dollars from these entities for his own benefit, as well as for Bankman-Fried and other insiders.
Friedberg held dual roles as the chief compliance officer for FTX’s U.S. arm and the general counsel for Alameda Research from 2017 until November 2022 when both companies faced significant challenges leading to their implosions. The complaint does not specify the exact amount of money paid by FTX executives to maintain the silence of insiders.
FTX’s legal representatives are seeking reimbursement for the payments made, along with interest, regarding Friedberg’s $300,000 salary, which was paid by both FTX.US and Alameda. Additionally, they are requesting the return of Friedberg’s $1.4 million signing bonus and an equity stake in FTX.US. Furthermore, they are seeking the retrieval of 102 million Serum tokens, valued at more than $12 million, that were granted to Friedberg during his tenure.
This latest development adds to the mounting legal issues surrounding FTX and its key personnel. The cryptocurrency industry has long been plagued by concerns regarding fraud, misappropriation of funds, and lack of regulation. While FTX had gained recognition as a prominent player in the market, these allegations serve as a stark reminder that even well-established platforms can face severe integrity challenges.
The outcome of this lawsuit will be closely watched as it may have significant consequences for FTX’s bankruptcy proceedings and potentially impact the broader cryptocurrency industry. Investors and users will be keenly interested in understanding the extent of the alleged wrongdoing and how it could affect their funds.
As the legal battle unfolds and more details emerge, it will be crucial for regulators to closely monitor the developments surrounding FTX and ensure that appropriate actions are taken to protect the interests of users and stakeholders. The incident also serves as a reminder of the importance of robust compliance protocols and the need for transparency within the cryptocurrency sector, which continues to grapple with issues of trust and legitimacy.