Profiles in Corruption: Dan Friedberg and FTX

Before Sam Bankman-Fried needed a criminal lawyer, he needed a *criminal lawyer.*

Probably the most interesting figure in the FTX Crime Family, outside of the core group of insiders and Sam Bankman-Fried’s literal family, is Dan Friedberg. Friedberg was hired on the specific recommendation of Joe Bankman. According to a suit filed against him by the FTX bankruptcy estate, Friedberg had a direct and cheerful role in funneling massive sums of money out of FTX/Alameda and into the hands of executives.

What makes this particularly fascinating is that Friedberg already had a track record of deep involvement with serious fraud. He was a lawyer working for the online, off-shore poker site Ultimate Bet, which in 2008 was discovered to have enabled cheating software, from about 2003-2007, to look at opponents’ hole cards in poker games.

Then, in 2013 – and this is where it gets awesome – a 2008 recording leaked of Dan Friedberg and the culprits in the Ultimate Bet swindle discussing, apparently in great detail, how to evade accountability for their theft and fraud. According to Pokerfuse.com, the tape is three hours long, and features Friedberg and others discussing strategies for covering up long-term cheating at Ultimate Bet, and of plausibly denying refunds to cheated customers.

The tape became public in 2013, meaning that Joe Bankman could not have been unaware of Friedberg’s apparent specialization in covering up fraud when Bankman recommended him for the top spot at FTX. It’s circumstantial, but another significant indicator that everyone involved at FTX, including Bankman-Fried’s parents, were planning a crime from the very beginning.

The other incredibly suspicious thing about Friedberg’s role at FTX/Alameda is that it basically never corresponded with his official title. At the time of FTX’s collapse, he was nominally “Chief Compliance Officer” – w hich, lol, lmao. But Can Sun, who had taken over as FTX’s General Counsel in August of 2021, testified last week that he was still effectively reporting to Friedberg by the time of FTX’s collapse.

Friedberg also held four job titles in two years, while seemingly not materially changing what the debtor suit makes seem like his main job: facilitating the flow of FTX customer deposits through Alameda Research and into the pockets of the FTX Insider group.

Friedberg, it seems, was in practice a kind of meta-lawyer for FTX, Alameda Research, FTX.US, and any number of other entities that amounted to “the FTX Group.”

But “FTX Group” was not a legal entity. In fact, it functionally included entities, particularly Alameda and FTX, that were specifically represented to the public and investors as separate, because their closeness – as it turns out! - enabled serious conflicts of interest. Friedberg clearly had no issue with this, freely mingling the funds of the supposedly unrelated companies.

Like everything else going on behind the curtain, Friedberg’s day-to-day activities completely put the lie to the idea that any of these were functionally separate companies. Claims to separation, between Alameda and FTX in particular, are core to the fraud allegations, and Friedberg clearly understood the assignment.

This isn’t just inference, either: I can’t pull the exact quote right now, but Joe Bankman referred to Friedberg early on as something along the lines of ‘one guy to have eyes on everything.’

Lawyered Down

The civil lawsuit from the FTX debtors (overseen by John Ray) alleges Friedberg engaged in cover-ups of alleged fraud at FTX, mostly by paying off whistleblowers. Friedberg also received a $3 million bonus that was effectively drawn from customer funds, and broadly engaged in and enabled “corporate waste.” The suit claims Friedberg breached his fiduciary duty to FTX investors and customers, and aided others in similar breaches. More broadly, it charges Friedberg with legal malpractice and professional negligence, because he failed to implement even basic controls.

The suit seeks compensatory and punitive damages, as well as the return of what it says are Friedberg’s ill-gotten gains, including the bonus and large grants of so-called “Samcoins.”

There are far more damning allegations in the suit, though, from a criminal liability standpoint,. One is the claim that Friedberg falsified a set of accounting standards and practices to show to investors ahead of a supposed FTX IPO in 2021. According to the debtor suit, Friedberg used “off the shelf” documentation of accounting controls, which was allegedly never even shown to employees, much less actually implemented as a real policy. This alone seems worthy of disbarment and criminal fraud action.

The claimants also have somehow gotten their hands on Signal messages showing Friedberg personally directing what is, prima facie, money laundering – a “round trip” of funds loaned from Alameda, funneled through executives, then disguised as a “stock investment” to be put back in Alameda. Given what we now know, this seems like an effort to take FTX customer funds and “clean” them for use as Alameda operating funds.

“ ... Friedberg instructed the same amount should be transferred from emergent@placeholder.com back to Alameda Research Ltd. as a “stock purchase.” As Friedberg explained, “it is just a round trip - from AR to Sam/Gary to Emergent back to AR Ltd.” e. Friedberg further flagged for the employees executing the transactions that “we’re going to have to do this a few times over the next few days.”

That’s what Lester from The Wire would have called a headshot. Friedberg is fucking dead, if anyone at DOJ bothers to sweep his corpse up off the street.

On the broader matter of the loans themselves, I’m still unclear on exactly how illegal they were. As I wrote way back in December of 2022, they’re clear sign of criminal intent – as the receivers write here, “Even during the crypto boom, the FTX Insiders could not reasonably have repaid these loans, and no reasonable lender would have loaned such large amounts.” But I’ve also heard that, in the weird world of international finance, loans to executives can be a practical, if not exactly legitimate, way to move money around.

But Friedberg’s actions here make the criminal intent even more obvious. The receivers allege that “Friedberg also falsely represented to the FTX Group’s outside accountant that interest on the loans was paid quarterly.” In fact, we’ve heard at trial that Nishad Singh was specifically issued further loans to pay the interest on huge loans from Alameda that he never asked for or saw any money from. This effectively squares with the debtors’ claim that “no interest was ever paid,” since the money was coming, so to speak, from inside the house.

“In fact, none of the loans discussed in this Complaint was ever repaid, nor upon information and belief was any interest ever paid on the loans, despite Friedberg’s false statement to the outside accountants that interest was paid quarterly on the loans. 100. On information and belief, Friedberg approved and executed each transaction for the sole purpose of the enrichment of FTX Insiders.”

Whistleblower Payoffs

Friedberg, like everyone else at FTX/Alameda, acted like he had infinite money. According to the suit, he not only paid repeated large settlements to whistleblowers, he then “hired” their lawyers for millions of dollars, “thereby buying or otherwise ensuring their silence.”

There are two main whistleblowers here, most notably a 2019 complaint that alleged “cryptocurrency price manipulation through pump and dump schemes, money laundering, operating an unlicensed money transmitter business, unfair business practices, and violations of the Commodity Exchange Act.”

After a settlement, the details of which are redacted in the debtor suit, the whistleblower’s attorney “sent Friedberg a letter threatening the possibility of additional adverse action against FTX. Prompted again to buy Plaintiffs’ Attorney-1’s silence, Friedberg … arranged for the FTX Group to pay Plaintiffs’ Attorney-1 $3,320,000 through July 2022. Upon information and belief, Plaintiffs’ Attorney-1 provided no actual legal services to the FTX Group after signing the engagement letter.”

Another huge hush payment (details again redacted) was allegedly paid to a former FTX.US employee turned whisteblower. In this case, Friedberg allegedly arranged for Alameda – not, notably, FTX.US – to pay a settlement that was likely in the millions of dollars to hush up the allegations.

The suit states that “Friedberg had a duty to investigate these claims” in his role as General Counsel for FTX. I don’t know the niceties, but it certainly seems like a circumstance where a lawyer should and could be disbarred.

No-Account Lawyering

In their claims against Friedberg, the FTX debtors also spell out the big picture of just how insane everything was: “With few exceptions, the FTX Group lacked independent or experienced finance, accounting, human resources, information security, and cybersecurity personnel or leadership.”

The suit claims that Friedberg, especially in his early role as General Counsel, had a fiduciary duty to impose those controls on his youthful bosses. But effectively at no time did FTX Group (which, again – not an actual legal entity, in fact an illegal entity) have “any effective internal audit function. Some FTX Group entities did not produce any financial statements. Some were deemed impossible to audit.”

The suit then quotes at length Sam Bankman-Fried’s risible April 2021 statement in an email that “Alameda is unauditable. I don’t mean this in the sense of “a major accounting firm will have reservations about auditing it”; I mean this in the sense of “we are only able to ballpark what its balances are, let alone something like a comprehensive transaction history. We sometimes find $50m of assets lying around that we lost track of; such is life.”

The fact that anyone saw this and didn’t immediately raise five alarms is staggering. At the time of this statement, according to the debtor suit, Friedberg was General Counsel of Alameda. I’ll take their word for it, I can’t keep track.

The debtors also detail what has become clear up close at trial, where we’re spending every day looking at some of the sloppiest quote-unquote “balance sheets” since Luca Pacioli invented double-entry bookkeeping.

“Those entities that did produce financial statements,” the debtors write, “Used QuickBooks, Google documents, Slack communications, Excel spreadsheets, and other inadequate means for measuring the level of assets and liabilities held by the FTX Group. Entries in QuickBooks were often made months after transactions occurred, rendering real-time financial reporting and risk management impossible. Even when records were made, many were facially inconsistent, entered in batches, or difficult (or impossible) to reconcile with other documentation.”

The final and perhaps most immediately serious claims against Friedberg in the receiver suit is that he attempted to defraud investors by falsifying accounting controls during an FTX IPO effort in early 2021.

“Because an IPO would require the preparation of audited financial statements for FTX, Friedberg scrambled to cobble together purported policies and procedures that could be shown to auditors. Policies were, accordingly, drafted by editing off-the-shelf templates provided by FTX Group’s outside accountants, Robert Lee & Associates. Plaintiffs have found no evidence that employees were ever trained on these policies.”

Insolvent at all Relevant Times

One final detail is spelled out here, not specifically related to Friedberg. The FTX receivers claim FTX was almost never solvent, much less profitable: “the Debtors’ misappropriation of customer funds rendered them insolvent at all relevant times. Without even accounting for distorting effects of Bankman Fried’s staggering fraud, at all relevant times the Debtors’ liabilities far exceeded the fair value of their assets.”

This is contra Michael Lewis, whose very recent claims that FTX was “a great business” were just one of a symphony of catastrophic misjudgments he made in the course of burning his reputation to the ground over the past month.

Dan Friedberg, meanwhile, is described in Lewis’ book about FTX as “one of the only adults in the room.”

Good God.

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