FTX-Exec Alleged in Hush-Money Scheme with Whistleblowers, Lawsuit States

FTX-Exec Helped Pay Hush Money To Potential Whistleblowers, Lawsuit Claims. Fresh administration at insolvent crypto exchange FTX has initiated legal proceedings against former Chief Compliance Officer (CCO) Daniel Friedberg, accusing him of facilitating deceit and providing "silence compensation" to hinder employees and their legal representatives from divulging said deceptive practices.

Key TakeAway

• FTX has lodged a lawsuit against former CCO Daniel Friedberg pertaining to his involvement in the clandestine fraudulent practices transpiring within the crypto exchange.
• Within the formal complaint, Friedberg is alleged to have disbursed concealed compensation, termed as "discreet remuneration," to two unidentified informants, denoted as Informant-1 and Informant-2, whereby one party received an "exceptional settlement.
• Moreover, FTX consummated a $12 million agreement with the legal representatives of Informant-1 in a bid to secure their silence.
• The lawsuit endeavors to reclaim the remuneration bestowed upon Friedberg during his tenure at FTX.

In the wake of a damning assessment from FTX's freshly appointed CEO, John J. Ray III, which asserted that FTX deliberately engaged in the improper utilization and diversion of customer funds preceding its downfall in November 2022, this fresh legal action holds the potential to unveil further insights into the involvement of certain notable executives.

FTX's Litigation Against Its Former CCO

FTX's submission encompasses numerous civil allegations against Friedberg, charging him with violating his legal obligations, endorsing deceptive transfers, and extending loans to other past FTX executives. Throughout his service at FTX, Friedberg purportedly obtained considerable remuneration, encompassing a $300,000 remuneration package, a $1.4 million joining gratuity, a separate $3 million cash incentive, an 8% stake in FTX US, and cryptocurrency holdings valued at tens of millions of dollars as of 2020. FTX aims to reclaim these assets via the present legal proceedings.

More precisely, the lawsuit alleges that Friedberg executed payments to two unnamed prospective whistleblowers, effectively silencing them and impeding the disclosure of regulatory concerns and the close affiliation between FTX and trading firm Alameda Research.

As per FTX's legal complaint, Friedberg functioned as a "mediator" for co-founder and former CEO Sam Bankman-Fried, with Bankman-Fried's father purportedly advocating for Friedberg to hold a central position within the organization. In addition to his role as FTX CCO, Friedberg concurrently served as the General Counsel for Alameda.

The specific details regarding the payments made to the whistleblowers are redacted in the complaint. However, one incident alluded to the provision of an undisclosed-value "remarkable settlement" to a former female employee named "Whistleblower-1," who had a tenure of less than two months at FTX US.

The settlement was a response to a demand letter asserting that Alameda operated as an extension of FTX, manipulating investor confidence and inflating project prices. Furthermore, the lawsuit alleges that FTX entered into an agreement to receive "general client counseling" from Whistleblower-1's attorneys, at a rate of $200,000 for a span of five years, totaling $12 million, in an effort to maintain their silence.

FTX also claimed that Friedberg terminated an attorney, referenced as "Whistleblower-2," who expressed concerns about governance and regulatory matters within Alameda. Notably, Whistleblower-2 received a "severance package," despite having worked at Alameda for less than three months, indicating an unusual circumstance, although the specific details of the package were redacted.

FTX Paving the Path for a Resurgence

As reported by the Financial Gazette, insolvent digital asset company FTX is actively orchestrating strategic maneuvers to revive its global cryptocurrency exchange, a move that has been anticipated for a considerable duration.

Ray disclosed that the company has commenced the pursuit of prospective stakeholders to facilitate the reestablishment of FTX.com, engaging in discussions with potential investors.

Furthermore, Bankman-Fried's endeavor to have numerous charges of criminal nature, associated with his involvement in the downfall of FTX, dismissed, faced dismissal from a Manhattan judge on Tuesday, delivering an unfavorable outcome.