Daily Management Review

Former Top Lawyer Of FTX Assisted US Authorities In The Bankman-Fried Case


Former Top Lawyer Of FTX Assisted US Authorities In The Bankman-Fried Case
FTX's former top lawyer Daniel Friedberg has cooperated with US prosecutors in their investigation into the crypto firm's collapse, putting more pressure on founder Sam Bankman-Fried, who was arrested on criminal fraud charges last month, according to a report published by Reuters quoting information from sources familiar with the matter.
Friedberg discussed FTX with two dozen investigators on November 22, according to the person. According to the source, the meeting was held at the office of the United States Attorney for the Southern District of New York and included representatives from the Justice Department, the Federal Bureau of Investigation, and the United States Securities and Exchange Commission. Reuters obtained copies of emails between attendees arranging the meeting with those agencies.
According to the source, during the meeting, he told prosecutors what he knew about Bankman-use Fried's of customer funds to finance his business empire. According to the source, Friedberg discussed the matter with other top executives and provided details about Bankman-hedge Fried's fund Alameda Research.
Friedberg's cooperation was previously unknown. According to the source, he has not been charged and has not been informed that he is the subject of a criminal investigation. Instead, he is expected to be called as a government witness in Bankman-October Fried's trial, according to the source.
Friedberg's lawyer, Telemachus Kasulis, the FBI, and FTX all declined to comment on his cooperation. The SEC, the DOJ, and Bankman-spokesman Fried's all declined to comment.
Bankman-Fried is alleged of siphoning billions of dollars in FTX client funds to Alameda to fund venture investments, high-end real estate purchases, and political contributions. In federal court in Manhattan on Tuesday, he pleaded not guilty.
"If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it," Manhattan U.S. Attorney Damian Williams, who is leading the criminal case against the now-bankrupt FTX, said last month.
Caroline Ellison, Alameda's former CEO, and Gary Wang, FTX's former chief technology officer, pleaded guilty to fraud and agreed to cooperate with the investigation. Ellison's lawyer did not respond to a request for comment. Wang's lawyer did not respond.
On November 11, FTX filed for bankruptcy. Friedberg received a call from two FBI agents based in New York a few days later, on November 14. According to a person familiar with the matter and emails reviewed by Reuters, he told them he was willing to share information but needed to ask FTX to waive his attorney-client privilege.
According to the email obtained by Reuters, Friedberg wrote to FTX the next day, requesting that the company waive his privilege so that he could cooperate with prosecutors. FTX did not do so, but agreed with Friedberg on the points he could disclose to investigators, the person said.
In an email obtained by Reuters, Friedberg responded to the two FBI agents, saying, "I want to cooperate in all respects."
According to a source and an email exchanged by participants, the US Attorney's Office set up a meeting where Friedberg signed so-called proffer letters prepared for him by the SEC and other agencies. Proposal letters typically describe a potential agreement between authorities and witnesses or subjects of an investigation.
Friedberg previously advised a variety of banking, fintech, and online gaming companies.
One of his previous employers, Excapsa Software, a Canadian online gaming firm where he was general counsel, was also embroiled in a cheating scandal involving a poker site it operated called Ultimate Bet. Ultimate Bet was fined $1.5 million by the Canadian Gaming Commission in 2008 for failing to enforce anti-fraud measures. Excapsa has since been defunct.
Friedberg and other Ultimate Bet associates privately discussed how to handle the scandal and minimize the amount of refunds owed to players that year, according to an audio recording available on the website PokerNews. Friedberg previously told NBC News that the audio was illegally recorded, but NBC's article made no mention of Friedberg questioning the audio's authenticity.
Friedberg first represented Bankman-Fried as outside counsel in 2017 while at the U.S. law firm Fenwick & West, where he chaired the payment systems group, according to a source familiar with the matter. According to the source, Friedberg advised Bankman-Fried on how to run Alameda, which he founded that year.
Friedberg moved in-house as FTX's chief regulatory officer in 2020, when Bankman-Fried launched a separate exchange for US customers called FTX.US.
Bankman-Fried wrote in a now-deleted blog post on FTX's website that year that Friedberg had been FTX's legal advisor "from the very beginning," noting that he had been "with us through thick and thin."
According to the source and three other people briefed on the talks, as well as text messages his legal team exchanged at the time, Friedberg resigned on Nov. 8, a day after Bankman-Fried disclosed to top executives that FTX was almost out of money.