Former FTX Prime Lawyer Revealed How Founder Misused Buyer Funds: Report

FTX’s former high lawyer Daniel Friedberg has cooperated with US prosecutors as they examine the crypto agency’s collapse, a supply acquainted with the matter mentioned, including strain on founder Sam Bankman-Fried who was arrested on legal fraud prices final month.

Friedberg gave particulars about FTX in a November 22 assembly with two dozen investigators, the individual mentioned. The assembly, held on the U.S. Legal professional for the Southern District of New York’s workplace included officers from the Justice Division, Federal Bureau of Investigation, and the US Securities and Change Fee, the supply mentioned. Emails between attendees scheduling the assembly with these businesses had been seen by Reuters.

On the assembly, he informed prosecutors what he knew of Bankman-Fried’s use of buyer funds to finance his enterprise empire, the supply mentioned. Friedberg recounted conversations he had with different high executives on the topic and offered particulars of how Bankman-Fried’s hedge fund Alameda Analysis functioned, the supply mentioned.

Friedberg’s cooperation has not been beforehand reported. He has not been charged and has not been informed he’s underneath legal investigation, the supply mentioned. As a substitute, he expects to be known as as a authorities witness in Bankman-Fried’s October trial, the individual mentioned.

Friedberg’s lawyer, Telemachus Kasulis, the FBI and FTX didn’t reply to requests for touch upon his cooperation. The SEC, the Division of Justice and Bankman-Fried’s spokesman declined to remark.

Bankman-Fried is accused of diverting billions of {dollars} in FTX shopper funds to Alameda to bankroll enterprise investments, luxurious actual property purchases, and political donations. On Tuesday, he pleaded not responsible in Manhattan federal court docket.

Manhattan US Legal professional Damian Williams, who’s main the legal case in opposition to now bankrupt FTX, mentioned final month: “Should you participated in misconduct at FTX or Alameda, now’s the time to get forward of it.”

Two of Bankman-Fried’s closest associates, Caroline Ellison, Alameda’s former chief government, and Gary Wang, FTX’s former chief expertise officer, pleaded responsible to fraud and agreed to cooperate. A lawyer for Ellison did not reply to a request for remark. Wang’s lawyer declined to remark.

MEETING WITH PROSECUTORS

FTX filed for chapter safety on Nov. 11. A couple of days later, on Nov. 14, Friedberg acquired a name from two FBI brokers based mostly in New York. He informed them he was prepared to share data however wanted to ask FTX to waive his attorney-client privilege, in line with an individual acquainted with the matter and emails seen by Reuters.

Friedberg wrote to FTX the subsequent day asking the corporate to waive his privilege so he may cooperate with prosecutors, in line with the e-mail seen by Reuters. FTX didn’t accomplish that, however agreed with Friedberg on the factors he may open up to investigators, the individual mentioned.

Friedberg then wrote again to the 2 FBI brokers, telling them in an e mail reviewed by Reuters: “I wish to cooperate in all respects.”

The U.S. Legal professional’s Workplace arrange a gathering the place Friedberg signed so-called proffer letters ready for him by the SEC and different businesses, in line with the supply and an e mail exchanged by members. Proffer letters sometimes describe a possible settlement between authorities and people who’re witnesses or topics of an investigation.

“THROUGH THICK AND THIN”

Previous to his work advising FTX, Friedberg suggested a mixture of banking, fintech, and on-line gaming corporations.

Considered one of his earlier employers, a Canadian on-line gaming agency named Excapsa Software program, the place he was basic counsel, additionally drew controversy on account of a dishonest scandal involving a poker website it operated known as Final Wager. A Canadian gaming fee in 2008 fined Final Wager $1.5 million for failing to implement measures to stop fraudulent actions. Excapsa has since dissolved.

Based on an audio recording out there on the web site PokerNews, Friedberg and another Final Wager associates privately mentioned that yr the best way to deal with the scandal and decrease the quantity of refunds owed to gamers. Friedberg beforehand informed NBC Information that the audio was illegally recorded however NBC’s article didn’t say that Friedberg challenged its authenticity.

Friedberg first represented Bankman-Fried in 2017 as exterior counsel whereas at U.S. legislation agency Fenwick & West, the place he chaired its fee programs group, the supply acquainted with the matter mentioned. On the time, the supply mentioned Friedberg suggested Bankman-Fried on operating Alameda, which he based that yr.

In 2020, when Bankman-Fried launched a separate alternate for U.S. clients known as FTX.US, Friedberg moved in-house as FTX’s chief regulatory officer.

In a now-deleted weblog submit printed that yr on FTX’s web site, Bankman-Fried wrote that Friedberg was FTX’s authorized advisor “from the very starting,” noting he had been “with us by thick and skinny.”

Friedberg resigned from his place on Nov. 8, a day after Bankman-Fried disclosed to high executives that FTX was nearly out of cash, in line with the supply and three different individuals briefed on the talks, together with textual content messages his authorized staff exchanged on the time.

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