Bankrupt Crypto Exchange FTX Files Lawsuit Against Former Compliance Chief

News | July 5, 2023 By:

FTX, a cryptocurrency exchange that filed for Chapter 11 bankruptcy in November 2022, has recently taken legal action against its former chief compliance/regulatory officer, Dan Friedberg. The lawsuit comes as a result of alleged conflicts of interest involving Friedberg, Sullivan & Cromwell (S&C), and Ryne Miller, FTX’s ex-U.S. General Counsel. FTX claims that these conflicts led to excessive service fees charged by S&C, resulting in over $40 million in charges since November 2022.

According to FTX’s lawsuit, Friedberg, who was hired under the insistence of Sam Bankman-Fried, the former CEO and founder of FTX, is accused of neglecting the exchange’s internal controls and acting as a “fixer” responsible for handling various matters, including paying off whistleblowers. The lawsuit also outlines the compensation package Friedberg received, including a $300,000 annual salary, a $1.4 million signing bonus, an 8% stake in FTX U.S., and other perks.

Furthermore, the lawsuit alleges that Friedberg was involved in establishing shell companies on behalf of FTX, which were used to open accounts, including one with a false website unrelated to FTX or Alameda. It also accuses Friedberg of making hush-money payments to silence potential legal threats. The lawsuit claims that Friedberg created these shell entities to overcome reluctance from U.S. banks to conduct business with cryptocurrency companies.

In addition, Friedberg is implicated in the preparation of substantial loan agreements to FTX’s founders, totaling over $2 billion, which have not been repaid. The bankruptcy proceedings and financial situation of FTX, including the disclosure of owing approximately $7 billion in liquid assets to its customers, have added urgency to the need for legal action against Friedberg.

FTX’s new CEO, John Ray III, who took over after Sam Bankman-Fried stepped down, is leading the bankruptcy proceedings. As part of the company’s commitment to transparency, an internal audit was conducted, revealing the outstanding debts owed to FTX customers.

This lawsuit against Friedberg represents a step taken by FTX to address the concerns of its creditors and provide some form of resolution. The outcome of this legal action could have significant implications for the bankruptcy proceedings and the recovery of funds owed to FTX’s stakeholders.

A copy of the original filing can be found here.